3. Effects of a government budget deficitSuppose a hypothetical open economy uses the U.S. dollar as currency. The table below presents data describing the relationship between different real interest rates and this economy’s levels of national saving, domestic investment, and net capital outflow. Assume that the economy is currently operating under a balanced government budget. On the following graph, plot the relationship between the real interest rate and net capital outflow by using the green points (triangle symbol) to plotthe 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 interestrate you derived in the previous graph.REAL INTEREST RATE-20Net Capital Outflow10-586420-15-100510NET CAPITAL OUTFLOW (Billions of dollars)1520NCOEqm. NCO?Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate impliesthat the economy is experiencingNow, suppose the government is experiencing a budget deficit. This means thatloanable funds.which leads to Suppose a hypothetical open economy uses the U.S. dollar as currency. The table below presents data describing the relationship between differentreal interest rates and this economy's levels of national saving, domestic investment, and net capital outflow. Assume that the economy is currentlyoperating under a balanced government budget.Real Interest Rate(Percent)765432REAL INTEREST RATE108Given the information in the table above, 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.00National Saving(Billions of dollars)40353025201520Market for Loanable Funds4060QUANTITY OF LOANABLE FUNDSDomestic Investment(Billions of dollars)30354045505580100oNet Capital Outflow(Billions of dollars)-20-15DemandCOSupply-10-505Equilibrium

Capital outflow is an economic expression explaining capital flowing out of a specific economy.…

Answered: Suppose a hypothetical open economy…

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 6CQ

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3. Effects of a government budget deficit

Suppose a hypothetical open economy uses the U.S. dollar as currency. The table below presents data describing the relationship between different real interest rates and this economy’s levels of national saving, domestic investment, and net capital outflow. Assume that the economy is currently operating under a balanced government budget.

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.
REAL INTEREST RATE
-20
Net Capital Outflow
10
-5
8
6
4
2
0
-15
-10
0
5
10
NET CAPITAL OUTFLOW (Billions of dollars)
15
20
NCO
Eqm. NCO
?
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
loanable funds.
which leads to

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