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Please Help! 3. Effects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real
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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. 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. Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate i that the economy is experiencing Now, suppose the government is experiencing a budget deficit. This means that. , which leads to loanable funds. After the budget deficit occurs, suppose the new equilibrium real interest rate is 5%. The following graph shows the demand curve in the for currency exchange market. Use the green line (triangle symbol) to show the supply curve in this market before the budget deficit. Then use the purple line (diamond sy show the supply curve after the budget deficit. Summarize the effects of a budget deficit by filling in the following tableStep by Step Solution
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