3. Effects of a government budget Consider a hypothetical small open economy with perfect capital mobility. The following table presents data on the relationship between various real interest rates, national saving, and domestic investment in this economy, where the currency is the dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National Saving Domestic Investment (Percent) Billions of dollars) (Billions of dollars) 45 25 6 40 30 35 35 30 40 N W A 25 45 20 50 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. ? Market for Loanable Funds 0 O 8 Demand Supply REAL INTEREST RATE (Percent) 0 20 40 80 80 100 QUANTITY OF LOANABLE FUNDS (Billions of dollars) Consider that the world interest rate is 5%. Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the world real interest rate implies that the economy is experiencing Now, suppose the government is experiencing a budget deficit. This means that , which leads to loanable funds Summarize the effects of a budget deficit by filling in the following table. Real Exchange Rate Trade Balance Effects of a Budget Deficit