3. Effects of a government budget deficitConsider 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 RateNational SavingDomestic InvestmentNet Capital Outflow(Percent)(Billions of dollars)(Billions of dollars)(Billions of dollars)74525-1064030-553535043040532545102205015 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 FundsDemandSupplyEquilibrium0204060801001086420REAL INTEREST RATEQUANTITY 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. Net Capital OutflowNCOEqm. NCO-20-15-10-5051015201086420REAL INTEREST RATENET 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 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 6%. The following graph shows the demand curve in the foreign-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 symbol) to show the supply curve after the budget deficit. Market for Foreign-Currency ExchangeInitial SupplySupply with Deficit-20-15-10-5051015201086420REAL EXCHANGE RATEQUANTITY OF DOLLARS (Billions)Demand Summarize the effects of a budget deficit by filling in the following table. Real Interest RateReal Exchange RateTrade BalanceEffects of a Budget Deficit 3. Effects of a government budget deficitConsider a hypothetical open economy. The following table presents data on the relationship betwoen various real interest rates and national saving.domestic investement, and net capital outflow in this economy, where the currency is the U.s. dollar. Assume that the economy is currentlyexperiencing a balanced govertment budget.Real Interest RateNational SavingDomestic Investment Net Capital Outflow(Percent)(Billions of dolars) (Billions of dollars) (Billions of dallars)4525-104030-535353040254510205015Givan the information in the preceding table, use the blue points (circle symbal) to ploe the damand for laanable funds. Next, use the arange paints(square symbol) to ploe the supply of loanable funds. Finally, use the black point (cross symbal) to indicate the oquilibrium in this market.Markat tor Lownable tunda10DumardAddngEqutrtum100QUANTITY OF LOANABLE FUNDSOn the falowing graph, ploe the relationship betwein the raal interest rate and nat capital outflow by using the green paints (riangle symbol) to platthe points from the initial data table. Than use the black paint (X symbal) to indicate the level of net capital autlow at the equilibrium real interestrate you derived in the previou graph.Net Captal Outtiow10Egm. NCO2015101015NET CATIAL OUTFLOW (Bicna of dullara)REAL NTEREST RATEREAL NTEREST RATE On the falloming graah, plat the relatianship betwean the ral interest rate and nat capital autfiow by using the green paints (triangle symbal) to platthe points from the intial data table. Than use the black point (X symbol) to indicate the level of net capital dutlow at the equalibrium real intarestrate you derived in the previous grah.Net Captal DuywNCOEgm. NCO2015101015NET CATIAL OUTFLOW (uionuf dlraBecause of the redationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate impliesthat the economy ixperencingNow, suppose the government is experiencing a budget deficit. This mears that- which kads tov lbanabile funds.Alter the budget deficit occurs, suppose the new equilibrium real interest rate is 6%. The folloming graph shows the demand curve in the foreign-currency exchange markat.LUse the green ine (triangle symbol) to show the supply curve in this market befare the budget defiat. Then uie the purple line (diamond symbol) toshow the supply carve after the budgat daficie.Markat tor toregn-Currency EschangeInt pplySupply with DDemnd2015101520QUANTITY OF DOLLARS (Bina)Summarine the effacts of a budgat deficit by filing in the following tableReal Interest RateReal Exchange RateTrade BalanceEffects of a Budget DuficitREAL EXCHANGE RATEREAL NTEREST RATE

The loanable funds market is a conceptual framework used in economics to describe the interaction…

Answered: Consider a hypothetical open economy.…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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.

Real Interest Rate	National Saving	Domestic Investment	Net Capital Outflow
(Percent)	(Billions of dollars)	(Billions of dollars)	(Billions of dollars)
7	45	25	-10
6	40	30	-5
5	35	35	0
4	30	40	5
3	25	45	10
2	20	50	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 FundsDemandSupplyEquilibrium0204060801001086420REAL INTEREST RATEQUANTITY 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.

Net Capital OutflowNCOEqm. NCO-20-15-10-5051015201086420REAL INTEREST RATENET 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 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 6%. The following graph shows the demand curve in the foreign-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 symbol) to show the supply curve after the budget deficit.

Market for Foreign-Currency ExchangeInitial SupplySupply with Deficit-20-15-10-5051015201086420REAL EXCHANGE RATEQUANTITY OF DOLLARS (Billions)Demand

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 Deficit

3. Effects of a government budget deficit
Consider a hypothetical open economy. The following table presents data on the relationship betwoen various real interest rates and national saving.
domestic investement, and net capital outflow in this economy, where the currency is the U.s. dollar. Assume that the economy is currently
experiencing a balanced govertment budget.
Real Interest Rate
National Saving
Domestic Investment Net Capital Outflow
(Percent)
(Billions of dolars) (Billions of dollars) (Billions of dallars)
45
25
-10
40
30
-5
35
35
30
40
25
45
10
20
50
15
Givan the information in the preceding table, use the blue points (circle symbal) to ploe the damand for laanable funds. Next, use the arange paints
(square symbol) to ploe the supply of loanable funds. Finally, use the black point (cross symbal) to indicate the oquilibrium in this market.
Markat tor Lownable tunda
10
Dumard
Addng
Equtrtum
100
QUANTITY OF LOANABLE FUNDS
On the falowing graph, ploe the relationship betwein the raal interest rate and nat capital outflow by using the green paints (riangle symbol) to plat
the points from the initial data table. Than use the black paint (X symbal) to indicate the level of net capital autlow at the equilibrium real interest
rate you derived in the previou graph.
Net Captal Outtiow
10
Egm. NCO
20
15
10
10
15
NET CATIAL OUTFLOW (Bicna of dullara)
REAL NTEREST RATE
REAL NTEREST RATE

On the falloming graah, plat the relatianship betwean the ral interest rate and nat capital autfiow by using the green paints (triangle symbal) to plat
the points from the intial data table. Than use the black point (X symbol) to indicate the level of net capital dutlow at the equalibrium real intarest
rate you derived in the previous grah.
Net Captal Duyw
NCO
Egm. NCO
20
15
10
10
15
NET CATIAL OUTFLOW (uionuf dlra
Because of the redationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate implies
that the economy ixperencing
Now, suppose the government is experiencing a budget deficit. This mears that
- which kads to
v lbanabile funds.
Alter the budget deficit occurs, suppose the new equilibrium real interest rate is 6%. The folloming graph shows the demand curve in the foreign-
currency exchange markat.
LUse the green ine (triangle symbol) to show the supply curve in this market befare the budget defiat. Then uie the purple line (diamond symbol) to
show the supply carve after the budgat daficie.
Markat tor toregn-Currency Eschange
Int pply
Supply with D
Demnd
20
15
10
15
20
QUANTITY OF DOLLARS (Bina)
Summarine the effacts of a budgat deficit by filing in the following table
Real Interest Rate
Real Exchange Rate
Trade Balance
Effects of a Budget Duficit
REAL EXCHANGE RATE
REAL NTEREST RATE

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