1. Using the market for loanable fund diagram, show graphically and explain how the interest rate...

 

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1. Using the market for loanable fund diagram, show graphically and explain how the interest rate and investment are affected in each of the following cases. (Draw a separate diagram for each.) i. Tax on interest income increases. ii. Government is running a budget surplus. iii. Investment tax credit falls. 2. i) Describe briefly the tools the central bank uses to control the money supply in the economy. ii) Explain briefly why the central bank's control over the MS is not perfect. 3. Suppose the central bank of a country buys bonds from the public equivalent to Tk. 600 crore. If the reserve ratio of the banking system is 20%, what is the maximum change in MS? 1. Using the market for loanable fund diagram, show graphically and explain how the interest rate and investment are affected in each of the following cases. (Draw a separate diagram for each.) i. Tax on interest income increases. ii. Government is running a budget surplus. iii. Investment tax credit falls. 2. i) Describe briefly the tools the central bank uses to control the money supply in the economy. ii) Explain briefly why the central bank's control over the MS is not perfect. 3. Suppose the central bank of a country buys bonds from the public equivalent to Tk. 600 crore. If the reserve ratio of the banking system is 20%, what is the maximum change in MS?