-In the Figure Above, the SLF Curve Is the Supply

question 25

Multiple Choice

-In the figure above, the SLF curve is the supply of loanable funds curve and the PSLF curve is the private supply of loanable funds curve. If there is no Ricardo-Barro effect and the government now runs a balanced budget,

• A) the equilibrium interest rate is 4 per cent and investment is $1.8 trillion.
• B) the interest rate will increase from 4 per cent to 6 per cent.
• C) the equilibrium interest rate is 6 per cent and investment is $1.6 trillion.
• D) there is shortage of investment funds of $0.4 trillion.
• E) there is a surplus of investment funds and the interest rate falls to 4 per cent.

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Definitions:

Sales Discounts

Concessions granted by sellers to buyers as an incentive to encourage prompt payment, recorded as a deduction from revenue.

Sales Returns and Allowances

A reduction in sales revenue due to the return of or allowances for unsatisfactory goods.

Revenue Account

An account that tracks the income a company generates from its business activities, excluding expenses.