Economics Macro
MCD2090 Revision Tutorial ( T2, 2012)
The following questions have been taken from the weekly tutorial questions. You are expected to attempt all of the following questions before you attend tutorial in week 12.
1. Topic: Saving, Investment and the Financial System
Terms and definitions: * * Financial system * Financial market * Financial intermediaries * Market for loanable funds * Real interest rate * Investment tax credit * Budget deficit * Budget surplus * Balanced budget * National saving * Private saving * Public saving
Questions
1. What is the role of the financial system? Name and describe two markets that are part of the financial system in our economy. Name and describe two financial intermediaries. What is the fundamental difference between financial markets and financial intermediaries? 2. Draw a diagram to illustrate the market for loanable funds (closed economy) where all savers take their funds to be loaned and where all investors go to borrow funds. a. Explain the supply curve for the loanable funds market. Why the supply curve for loanable funds is upward sloping? b. Explain the demand curve for the loanable funds market. Why the demand curve for loanable funds is downward sloping? c. How the real interest rate adjusts to balance the supply of and demand for loanable funds (adjustment process). 3. Using separate diagrams for market for loanable funds (closed economy) explain and illustrate the impact of: d. Reduced taxation on interest payments. e. Superannuation rebates to encourage savings. f. A reduction in government deficit (or an increase in a budget surplus) on * Supply curve of lonable funds * Demand curve of lonable funds * Private Savings * Public Savings * National Savings * Investment * The new equilibrium real interest rate and quantity of lonable funds
2. Topic:
The following questions have been taken from the weekly tutorial questions. You are expected to attempt all of the following questions before you attend tutorial in week 12.
1. Topic: Saving, Investment and the Financial System
Terms and definitions: * * Financial system * Financial market * Financial intermediaries * Market for loanable funds * Real interest rate * Investment tax credit * Budget deficit * Budget surplus * Balanced budget * National saving * Private saving * Public saving
Questions
1. What is the role of the financial system? Name and describe two markets that are part of the financial system in our economy. Name and describe two financial intermediaries. What is the fundamental difference between financial markets and financial intermediaries? 2. Draw a diagram to illustrate the market for loanable funds (closed economy) where all savers take their funds to be loaned and where all investors go to borrow funds. a. Explain the supply curve for the loanable funds market. Why the supply curve for loanable funds is upward sloping? b. Explain the demand curve for the loanable funds market. Why the demand curve for loanable funds is downward sloping? c. How the real interest rate adjusts to balance the supply of and demand for loanable funds (adjustment process). 3. Using separate diagrams for market for loanable funds (closed economy) explain and illustrate the impact of: d. Reduced taxation on interest payments. e. Superannuation rebates to encourage savings. f. A reduction in government deficit (or an increase in a budget surplus) on * Supply curve of lonable funds * Demand curve of lonable funds * Private Savings * Public Savings * National Savings * Investment * The new equilibrium real interest rate and quantity of lonable funds
2. Topic: