Policies - ($billions D 1 A budget deficit reduces national...

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1 Policy 1: Saving Incentives Interest Rate Loanable Funds ($billions) D 1 Tax incentives for saving increase the supply of loanable funds S 1 5% 60 S 2 …which reduces the equil. interest rate and increases the equil. quantity of loanable funds. 4% 70
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2 Policy 2: Investment Incentives Interest Rate Loanable Funds ($billions) D 1 An investment tax credit increases the demand for loanable funds S 1 5% 60 …which raises the equil interest rate and increases the equil quantity of loanable funds 6% 70 D 2
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3 Policy 3: Govt Budget Deficits Interest Rate Loanable Funds
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Unformatted text preview: ($billions) D 1 A budget deficit reduces national saving and the supply of loanable funds S 1 5% 60 S 2 …which increases the equil. interest rate and decreases the equil. quantity of loanable funds 6% 50 4 Budget Deficits, Crowding Out, & Long-Run Growth If the government borrows to finance its deficit, less funds are available for investment. This is called crowding out . Recall that investment is important for long-run economic growth. Hence, budget deficits may reduce the economy’s growth rate and future standard of living....
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