### Understanding the Relationship Between Interest Rates and Economic Indicators#### Table: Economic Indicators in a Hypothetical Open EconomyThis table illustrates the association between real interest rates and various economic indicators, including national saving, domestic investment, and net capital outflow in a hypothetical economy using the U.S. dollar. The economy is assumed to be operating under a balanced government budget.| Real Interest Rate (Percent) | National Saving (Billions of dollars) | Domestic Investment (Billions of dollars) | Net Capital Outflow (Billions of dollars) ||------------------------------|--------------------------------------|------------------------------------------|------------------------------------------|| 7 | 45 | 30 | -15 || 6 | 40 | 35 | -10 || 5 | 35 | 40 | -5 || 4 | 30 | 45 | 0 || 3 | 25 | 50 | 5 || 2 | 20 | 55 | 10 |#### Graph: Market for Loanable Funds- **Axis Labels**: - Vertical Axis: Real Interest Rate - Horizontal Axis: Quantity of Loanable Funds- **Instructions for Plotting**: - **Demand Curve**: Use blue circle points to plot the demand for loanable funds. - **Supply Curve**: Use orange square points to plot the supply of loanable funds. - **Equilibrium**: Use a black cross point to indicate the market equilibrium.This graph helps in visualizing how different interest rates affect the quantity of loanable funds available, thus illustrating economic dynamics in an open market. ### Understanding the Relationship Between Real Interest Rates and Net Capital Outflow**Graph Overview:**The graph illustrates the relationship between the real interest rate and net capital outflow. The x-axis represents the net capital outflow measured in billions of dollars, ranging from -20 to 20. The y-axis represents the real interest rate, ranging from 0 to 10.**Plotting Points:**- The green triangle symbol ("NCO") is used to plot the points representing the initial data relationship.- The black "X" symbol marks the equilibrium net capital outflow (Eqm. NCO) at the determined real interest rate.**Analysis Tasks:**1. **Net Capital Outflow and Net Exports:** - The level of net capital outflow at equilibrium implies the economy's state is in need of identification (budget surplus or deficit).2. **Government Budget Deficit Impact:** - When the government has a budget deficit, it leads to a change in the economy, affecting either national saving or domestic investment. Options to consider include: - National saving will decrease. - Domestic investment will decrease.3. **Post-Deficit Equilibrium:** - After a budget deficit occurs, the new equilibrium real interest rate increases, impacting the foreign currency exchange market.4. **Supply and Demand Curves:** - Use the green line (triangle symbol) to plot the new supply curve in the market. - Use the purple line (diamond symbol) to illustrate the updated demand curve after a budget deficit.Through the use of the graph and further analysis, these steps aid in understanding the broader economic impacts of changes in net capital outflow and governmental fiscal behavior.

International Capital mobility is a very common phenomena which occurs in these times of globalized…

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. Real Interest Rate (Percent) 7 6 4 3 2 National Saving (Billions of dollars) 45 40 35 30 25 20 Domestic Investment (Billions of dollars) 30 35 40 45 50 55 Net Capital Outflow (Billions of dollars) -15 -10 0 5 10 Given 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.

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. Real Interest Rate (Percent) 7 6 4 3 2 National Saving (Billions of dollars) 45 40 35 30 25 20 Domestic Investment (Billions of dollars) 30 35 40 45 50 55 Net Capital Outflow (Billions of dollars) -15 -10 0 5 10 Given 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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

At an aggregate output level of $400 billion what is aggregate savings?
] In the loanable funds market model, assuming everything else is constant, which curve (supply of funds or demand for funds) is affected if there is an increase in national saving? How will equilibrium real interest rate and equilibrium quantity of loans change?
Consider the following functions for consumption and investment: C = 1,000 + (2/3)*(Y – T) and I = 1,200 – 100*r. Furthermore, Y = 8,000, G = 2500, T = 2,000. Compute private, public, and national savings for this economy, and find the equilibrium real interest rate (r). Assume that G declines by 500 units. How will it change your answers in part (a)? What happens to the national savings, given everything else, if the public decides to consume less out of their disposable income (assume that the propensity of consume falls by 10 percent)? Given your answer in part (c), what happens to investment and real interest rate? Answer all four.
The following table contains data for a hypothetical closed economy that uses the dollar as its currency. Suppose GDP in this country is $1,540 million. Enter the amount for government purchases. National Income Account Value (Millions of dollars) Government Purchases (GG) Taxes minus Transfer Payments (TT) 455 Consumption (CC) 700 Investment (II) 490 Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table. National Saving (S)National Saving (S) = = (y-t-g, g-t, y-c, y-c-g) = = (C,G,Y,I) $ ______million
Africa's government has increased its spending this year, leading to a growing budget deficit. How will this growing budget deficit affect the economy? Your answer should discuss interest rates, private investment, and aggregate expenditure.
Suppose government provides tax rebate to small business on their business-related expenditure. Assuming no change in government budgetary position, this policy is likely to have a positive effect on household (or private) saving in the economy (Hint: think about the effect of this policy in Loanable Funds Market) Is this statement true, false or uncertain? Please provide your explaination.
The graphs below depict the loanable funds market and the relationship between real interest rates and the level of net capital outflow (NCO) calculated in terms of the Mexican peso. REAL INTEREST RATE (Percent) 8 8 10 3 1 The Market for Loanable Funds in Mexico + 0 1 2 3 4 Supply Demand 5 6 LOANABLE FUNDS (Billions of pesos) Initial state After capital flight 7 8 (?) REAL INTEREST RATE (Percent) Complete the first row of the table to reflect the state of the markets in Mexico. Real Interest Rate Net Capital Outflow (NCO) (Percent) (Billions of pesos) Mexican Net Capital Outflow 8 7 6 10 5 4 3 2 NÇO + # -3 -2 -1 0 1 2 3 4 5 NET CAPITAL OUTFLOW (Billions of pesos) 6 (?) Suppose now that a sudden bout of political turmoil in Mexico causes world financial markets to become uneasy. Because investors now see Mexico as unstable, they decide to pull a portion of their assets out of Mexico and put them into more stable economies. This unexpected shock to the demand for assets in Mexico is…
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 55 25 -10 6 50 35 -5 5 45 45 0 4 40 55 5 3 35 65 10 2 30 75 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.