The accompanying diagram depicts a hypothetical market for loanable funds. Suppose a small government begins to run a budget deficit and needs to borrow money to meet its obligations for the first time. a. Show the change in the loanable funds market caused by the government deficit by shifting one or more of the curves. Then, mark the new equilibrium using point E. b. Place point B at the point which indicates the amount of private borrowing after the market shift. c. How does this level compare to pre-deficit levels? O There is not enough information to determine how Real interest rate () Market for Loanable Funds Quantity of loanable funds (5)
The accompanying diagram depicts a hypothetical market for loanable funds. Suppose a small government begins to run a budget deficit and needs to borrow money to meet its obligations for the first time. a. Show the change in the loanable funds market caused by the government deficit by shifting one or more of the curves. Then, mark the new equilibrium using point E. b. Place point B at the point which indicates the amount of private borrowing after the market shift. c. How does this level compare to pre-deficit levels? O There is not enough information to determine how Real interest rate () Market for Loanable Funds Quantity of loanable funds (5)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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