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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 (Percent) 7 4 3 2 National Saving (Billions of dollars) 50 45 40 35 30 25 Domestic Investment (Billions of dollars) 30 40 50 60 70 80 Net Capital Outflow (Billions of dollars) -20 -15 -10 -5

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 (Percent) 7 4 3 2 National Saving (Billions of dollars) 50 45 40 35 30 25 Domestic Investment (Billions of dollars) 30 40 50 60 70 80 Net Capital Outflow (Billions of dollars) -20 -15 -10 -5

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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 (Percent) 7 6 5 4 3 2 National Saving (Billions of dollars) 50 45 40 35 30 25 Domestic Investment (Billions of dollars) 30 40 50 60 70 80 Net Capital Outflow (Billions of dollars) -20 -15 -10 -5 0 5
Transcribed Image Text: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 (Percent) 7 6 5 4 3 2 National Saving (Billions of dollars) 50 45 40 35 30 25 Domestic Investment (Billions of dollars) 30 40 50 60 70 80 Net Capital Outflow (Billions of dollars) -20 -15 -10 -5 0 5
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. REAL EXCHANGE RATE -20 -15 Market for Foreign-Currency Exchange 10 6 Effects of a Budget Deficit 4 2 Demand -10 -5 0 5 10 QUANTITY OF DOLLARS (Billions) 15 20 Summarize the effects of a budget deficit by filling in the following table. Initial Supply Supply with Deficit ? Real Interest Rate Real Exchange Rate Trade Balance
Transcribed Image Text: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. REAL EXCHANGE RATE -20 -15 Market for Foreign-Currency Exchange 10 6 Effects of a Budget Deficit 4 2 Demand -10 -5 0 5 10 QUANTITY OF DOLLARS (Billions) 15 20 Summarize the effects of a budget deficit by filling in the following table. Initial Supply Supply with Deficit ? Real Interest Rate Real Exchange Rate Trade Balance
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