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Section II The charts below depict lending and borrowing for the U.S. economy in late 2030: 6 6 5 S I l 3 3 2
Section II The charts below depict lending and borrowing for the U.S. economy in late 2030: 6 6 5 S I l 3 3 2 2 I 1 CI 0 0 2m 020 an: El} 1503 0 2:0 I!) 503 am 1020 1. The two quadrants above depict the U.S. loanable funds markets in late 2030. Label the curves and identify, on the graph, the equilibrium real corporate borrowing rate and the equilibrium quantity of lending to U.S. corporations. Likewise, identify the equilibrium quantity of borrowing by the U.S. government, and the equilibrium interest rate that households receive. What is the spread between the two equilibrium borrowing rates? The Federal government, in late 2030, enacts a very large green energy spending program. The U.S. government, in 2031, needs to borrow 100% more than they did in 2030. In 2030 inflation, inflation is expected to rise by 1.5% per year. In 2031, inflation rises and inflation expectations rise to 2.5%. a) In the government quadrant, adjust the picture to represent the change in government policy. Identify the new equilibrium interest rate, and the new equilibrium level of lending to the government. b) We now have a new equilibrium rg . How will that affect the loanable funds market for corporations
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