Use the graph in Figure 7.9 to answer the following questions: a. Suppose the government restricts total
Question:
Use the graph in Figure 7.9 to answer the following questions:
a. Suppose the government restricts total borrowing to an amount less than L̅. What would the effect be on capital holdings?b. Find the effect of an increase in the supply of loans on capital and the interest rate. What would the effect be on the interest rate if there were no capital?c. Find the effect of a decrease in capital's rate of return on the amount borrowed and the stock of capital.
Transcribed Image Text:
Supply of Loans Demand for Loans Goods L* Goods lent Goods held in capital
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a If the government restricts borrowing to an amount less than L lenders will substitute capital for ...View the full answer
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Related Book For
Modeling Monetary Economies
ISBN: 978-1107145221
4th Edition
Authors: Bruce Champ, Scott Freeman, Joseph Haslag
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