a) Calculate the equilibrium real interest rate, investment, and private saving.

b) If planned saving increases by $0.5 billion at each real interest rate, explain the change in the real interest rate.

c) If planned investment increases by $1 billion at each real interest rate, explain the change in the real interest rate.

d) If the government’s budget becomes a deficit of $1 billion, what are the real interest rate and investment? Does crowding out occur?

e) If the government’s budget becomes a deficit of $1 billion and the Ricardo-Barro effect occurs, what are the real interest rate and the investment?

The table sets out data for an economy when the government's budget is balanced. Loanable funds demanded (billions of 2007 dollars) Loanable funds supplied (billions of 2007 dollars) Real interest rate (percent per year) 4 5 6 7 8 9 10 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.5 6.0 6.5 7.0 7.5 8.0 8.5