Attempts Keep the Highest / 6 3. Effects of a government budget deficit Suppose a hypothetical open economy uses the U.S. dollar as currency. The table below presents data describing the relationship between different real interest rates and this economy's levels of national saving, domestic investment, and net capital outflow. Assume that the economy is currently operating under 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 40 30 20 35 35 -15 30 40 -10 4 25 45 -5 20 50 O 15 55 Given the information in the table above, 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. Finally, use the black point (cross symbol) to indicate the equilibrium in this market.Given the information in the table above, 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. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. Market for Loanable Funds 10 Demand 6 Supply REAL INTEREST RATE Equilibrium 2 20 40 60 80 100 QUANTITY OF LOANABLE FUNDS On the following graph, plot the relationship between the real interest rate and net capital outflow by using the green points (triangle symbol) to plot the points from the initial data table. Then use the black point (X symbol) to indicate the level of net capital outflow at the equilibrium real interest rate you derived in the previous graph.On the following graph, plot the relationship between the real interest rate and net capital outflow by using the green points (triangle symbol) to plot the points from the initial data table. Then use the black point (X symbol) to indicate the level of net capital outflow at the equilibrium real interest rate you derived in the previous graph. Net Capital Outflow 10 A NCO CO Eqm. NCO REAL INTEREST RATE 4 2 -20 -15 -10 -5 0 5 10 15 20 NET CAPITAL OUTFLOW (Billions of dollars)Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate implies that the economy is experiencing Now, suppose the government is balanced trade iget deficit. This means that , which leads to a trade surplus ads. a trade deficit After the budget deficit occurs, su uilibrium real interest rate is 7%. The following graph shows the demand curve in the foreign- currency exchange market.Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium 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. national saving will increase After the budget deficit occurs, suppose the new equilibrium real interest rate is national saving will decrease emand curve in the foreign- currency exchange market. domestic investment will increase domestic investment will decrease Use the green line (triangle symbol) to show the supply curve in this market bef purple line (diamond symbol) to show the supply curve after the budget deficit.Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium 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. an increase in the supply of ppose the new equilibrium real interest rate is 7%. The following graph shows the demand curve in the foreign- a decrease in the supply of an increase in the demand for DI) to show the supply curve in this market before the budget deficit. Then use the purple line (diamond symbol) to a decrease in the demand for udget deficit.Use the green line (triangle symbol) to show the supply curve in this market before the budget deficit. Then use the purple line (diamond symbol) show the supply curve after the budget deficit. (? Market for Foreign-Currency Exchange 10 A Initial Supply Supply with Deficit REAL EXCHANGE RATE 4 2 Demand -20 -15 -10 -5 0 5 10 15 20 QUANTITY OF DOLLARS (Billions) Summarize the effects of a budget deficit by filling in the following table. Real Interest Rate Real Exchange Rate Trade Balance Effects of a Budget DeficitIncreases Summarize the effects of a budget g in the following table. Decreases R Rate Real Exchange Rate Trade Balance Effects of a Budget DeficitIncreases Summarize the effects of a budget deficit by filling in the fol Decreases Real Interest Rate Re Rate Trade Balance Effects of a Budget DeficitSurplus Summarize the effects of a budget deficit by filling in the following table. Deficit Real Interest Rate Real Exchange Rate nce Effects of a Budget Deficit