Question
I need assistance the this problem. Can someone please help me? Effects of a government budget deficit Consider a hypothetical open economy. The following table
I need assistance the this problem. Can someone please help me?
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 | 60 | 30 | -10 |
6 | 55 | 40 | -5 |
5 | 50 | 50 | 0 |
4 | 45 | 60 | 5 |
3 | 40 | 70 | 10 |
2 | 35 | 80 | 15 |
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.
Market for Loanable Funds 10 O Demand 8 -0- Supply 6 + REAL INTEREST RATE 4 Equilibrium 2 0 40 60 80 100 0 20 QUANTITY OF LOANABLE FUNDSREAL INTEREST RATE Net Capital Outflow 1D 15 1D 5 U 5 1D 15 NET CAPITAL OUTFLOW [Billions of dollars) 2!] Market for Foreign-Currency Exchange 10 A 8 Initial Supply 6 Supply with Deficit REAL EXCHANGE RATE 4 2 Demand -20 -15 -10 -5 0 5 10 15 20 QUANTITY OF DOLLARS (Billions)Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started