Suppose a government tax cut increases disposable income. If there is no change in the government deficit or surplus, what effect would this tax cut have on the supply of loanable funds and the demand for loanable funds? What will happen to the real
interest rate?
By increasing disposable income, the tax cut will increase saving. The supply curve of loanable funds will shift rightward. The real interest rate will decrease, the quantity of loanable funds will increase, and there will be no change in the demand for loanable funds curve.
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The preferred asset ratio "U/D" affects the M2 money multiplier because:
a. Actually, it is does not affect the M2 money multiplier because customary reserves are not a part of M2. b. Funds kept in customary reserves reduce financial institution's ability to lend. c. U/D affects the required reserves financial institutions must hold and thereby affects the banking system's lending ability. d. U/D determines the funds flowing into near-money accounts. e. None of the above.
Governments can improve market outcomes for
a. public goods but not common resources. b. common resources but not public goods. c. both public goods and common resources. d. neither public goods nor common resources.