3. Effects of a government budget deficit Consider a hypothetical open economy. The following table presents data
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3. 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 |
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