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1.Suppose that the federal government has a budget deficit and the economy is closed. Using the...

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Economics

1.Suppose that the federal government has a budget deficit andthe economy is closed. Using the savings–investment spendingidentity, explain how this affects investment spending.

2.The market for loanable funds is in equilibrium. All elseequal, the federal government has eliminated taxes on interestearned from savings. Describe how this will affect the market forloanable funds, the equilibrium interest rate, and the equilibriumquantity of loanable funds.

Answer & Explanation Solved by verified expert
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1A budget deficit increases government borrowing for deficitfinancing Since investment represents the demand for borrowinghigher borrowing increases investment shifting investment curve toright    See Answer
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