The table given below shows an economy’s demand for loanable funds and the supply of loanable funds schedules when the government’s budget is balanced. Real Interest rate (% per year) Loanable fund demanded (Trillian of 2002 $) Loanable fund supplied (Trillian of 2002 $) 4 8.5 5.5 5 8 6 6 7.5 6.5 7 7 7 8 6.5 7 9 6 8 10 5.5 8.5 1. If the government has a budget surplus of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? 2. If the government has a budget deficit of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? 3. If the government has a budget deficit of $1 trillion and the Ricardo-Barro effect occurs, what are the real interest rate and the quantity of investment?
The table given below shows an economy’s demand for loanable funds and the supply of loanable funds schedules when the government’s budget is balanced. Real Interest rate (% per year) Loanable fund demanded (Trillian of 2002 $) Loanable fund supplied (Trillian of 2002 $) 4 8.5 5.5 5 8 6 6 7.5 6.5 7 7 7 8 6.5 7 9 6 8 10 5.5 8.5 1. If the government has a budget surplus of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? 2. If the government has a budget deficit of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? 3. If the government has a budget deficit of $1 trillion and the Ricardo-Barro effect occurs, what are the real interest rate and the quantity of investment?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The table given below shows an economy’s demand for loanable funds and the supply of loanable funds schedules when the government’s budget is balanced.
| Real Interest rate (% per year) | Loanable fund demanded (Trillian of 2002 $) | Loanable fund supplied (Trillian of 2002 $) |
| 4 | 8.5 | 5.5 |
| 5 | 8 | 6 |
| 6 | 7.5 | 6.5 |
| 7 | 7 | 7 |
| 8 | 6.5 | 7 |
| 9 | 6 | 8 |
| 10 | 5.5 | 8.5 |
1. If the government has a budget surplus of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation?
2. If the government has a budget deficit of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation?
3. If the government has a budget deficit of $1 trillion and the Ricardo-Barro effect occurs, what are the real interest rate and the quantity of investment?
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