. 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

30

15

6

50

40

10

5

45

50

5

4

40

60

0

3

35

70

5

2

30

80

10

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. Finally, use

the black point (cross symbol) to indicate the equilibrium in this market.