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 55 25 -10 6 50 35 -5 5 45 45 0 4 40 55 5 3 35 65 10 2 30 75 15 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 (trade balance, defict, surplus) . Now, suppose the government is experiencing a budget deficit. This means that (national savings increase or decrease, domestic investments increase or decrease) , which leads to (increase or decrease in supply , increase or decrease in demand) loanable funds.
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 55 25 -10 6 50 35 -5 5 45 45 0 4 40 55 5 3 35 65 10 2 30 75 15 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 (trade balance, defict, surplus) . Now, suppose the government is experiencing a budget deficit. This means that (national savings increase or decrease, domestic investments increase or decrease) , which leads to (increase or decrease in supply , increase or decrease in demand) loanable funds.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
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 | 55 | 25 | -10 |
| 6 | 50 | 35 | -5 |
| 5 | 45 | 45 | 0 |
| 4 | 40 | 55 | 5 |
| 3 | 35 | 65 | 10 |
| 2 | 30 | 75 | 15 |
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 (trade balance, defict, surplus) .
Now, suppose the government is experiencing a budget deficit. This means that (national savings increase or decrease, domestic investments increase or decrease) , which leads to (increase or decrease in supply , increase or decrease in demand) loanable funds.
After the budget deficit occurs, suppose the new equilibrium real interest rate is 7%. The following graph shows the demand curve in the foreign-currency exchange market.
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 | increase, decrease | increase, decrease | surplus, deficit |
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education