10 Investment And Saving

Question 1

What is National saving equal to?

Answer 1

S= Y-C-G=I

Question 2

What does T stand for?

Answer 2

Taxes minus transfer payments

Question 3

What is private saving equal to?

Answer 3

Y-T-C

Income that households have left after paying for taxes and consumption

Question 4

What is public saving equal to?

Answer 4

T-G

Tax revenue that the government has left after paying for its spending

Question 5

When does the government have a budget surplus

Answer 5

When T>G

Question 6

When does the governor have a budget deficit?

Answer 6

T

Question 7

What is the supply of loanable funds equal to?

Answer 7

Supply = total savings

Question 8

What is the demand for loanable funds equal to?

Answer 8

Demand = investments (only private savings not public investment because it is included in G)

Question 9

What is on the y axis for the market for loanable funds

Answer 9

Real interest rate

Question 10

How would saving incentives affect the market for loanable funds?

Answer 10

Replacing income tax with a consumption tax like VAT would increase the incentive for saving. This shifts supply right so new equilibrium with lower interest rate and higher quantity of loanable funds is achieved. Greater investment means higher GDP growth

Question 11

How does running a budget deficit affect the market for loanable funds

Answer 11

If the gov starts running a deficit which is achieved by issuing bonds then supply shifts left. This gives equilibrium with higher interest rate, lower investment and therefore lower GDP. This is an example of crowding out

Question 12

Crowding out

Answer 12

A decrease in private investment as a result of gov borrowing