Effects of a government budget deficitConsider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget.Real Interest RateNational SavingDomestic InvestmentNet Capital Outflow(Percent)(Billions of dollars)(Billions of dollars)(Billions of dollars)75525-1065035-554545044055533565102307515Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. Market for Loanable Funds10DemandSupplyEquilibrium20406080100QUANTITY OF LOANABLE FUNDSREAL INTEREST RATE

The real interest rate, savings, domestic investment and net capital outflow of an hypothetical…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Effects of a government budget deficit

Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget.

Real Interest Rate	National Saving	Domestic Investment	Net Capital Outflow
(Percent)	(Billions of dollars)	(Billions of dollars)	(Billions of dollars)
7	55	25	-10
6	50	35	-5
5	45	45	0
4	40	55	5
3	35	65	10
2	30	75	15

Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market.

Market for Loanable Funds
10
Demand
Supply
Equilibrium
20
40
60
80
100
QUANTITY OF LOANABLE FUNDS
REAL INTEREST RATE

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