It’s time to start worrying about the National Debt The budget deficit this year is expected to reach $1 trillion. The government is financing this gap between its outlays and tax revenue by selling Treasury bills and bonds to American and international investors. Draw a graph of the loanable funds market to illustrate the situation described in the article. How will selling Treasury bills and bonds to American and international investors change the real interest rate and the quantity of saving in the United States?

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FIGURE 26.2 Chapter Checkpoint Study Plan Problem 7 Real interest rate (percent per year) 8 7 6 5 4 0 0.5 DLFO SLF DLF 1.0 1.5 2.0 2.5 3.0 Loanable funds (trillions of 2012 dollars)