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2. Saving and investment in the national income accounts The following table contains data for a hypothetical closed economy that uses the dollar as its
2. Saving and investment in the national income accounts The following table contains data for a hypothetical closed economy that uses the dollar as its currency. Suppose GDP in this country is $660 million. Enter the amount for government purchases. Value National Income Account (Millions of dollars) Government Purchases (G) Taxes minus Transfer Payments (T) 195 Consumption (C) 300 Investment (1) 210 Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding tab/e. National Saving (S ) || 4 II 4 million Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table. Private Saving || 4 million Public Saving || 4 million Based on your calculations, the government is running a budget V . 4. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. 10 9 Supply Co INTEREST RATE (Percent) A w Demand 2 0 0 100 200 300 400 500 600 700 800 900 1000 LOANABLE FUNDS (Billions of dollars)Y is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied V . Suppose the interest rate is 5.5%. Based on the previous graph, the quantity of loanable funds supplied is V than the quantity of loans demanded, resulting in a V of loanable funds. This would encourage lenders to V the interest rates they charge, thereby V the quantity of loanable funds supplied and V the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of %
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