Saving, Investment, and the Financial System - End of Interest rate Chapter Problems 24% 22 5. The government is running a budget balance of zero when it decides to increase education spending by $200 20 18 16 billion and finance the spending by selling bonds. The 14 accompanying diagram shows the market for loanable funds before the government sells the bonds. Assume that there are no capital inflows or outflows. As a result of the 12 10 8 6 increase in education spending, the equilibrium interest rate 2 D by $200 1,200 percentage points, and the 400 600 800 1,000 Quantity of loanable funds (billions of dollars) equilibrium quantity of loanable funds by billion dollars. This an example of crowding out.

Question
Saving, Investment, and the Financial System - End of
Interest
rate
Chapter Problems
24%
22
5. The government is running a budget balance of zero
when it decides to increase education spending by $200
20
18
16
billion and finance the spending by selling bonds. The
14
accompanying diagram shows the market for loanable
funds before the government sells the bonds. Assume that
there are no capital inflows or outflows. As a result of the
12
10
8
6
increase in education spending, the equilibrium interest rate
2
D
by
$200
1,200
percentage points, and the
400
600
800
1,000
Quantity of loanable funds (billions of dollars)
equilibrium quantity of loanable funds
by
billion dollars. This
an example
of crowding out.

Image Transcription

Saving, Investment, and the Financial System - End of Interest rate Chapter Problems 24% 22 5. The government is running a budget balance of zero when it decides to increase education spending by $200 20 18 16 billion and finance the spending by selling bonds. The 14 accompanying diagram shows the market for loanable funds before the government sells the bonds. Assume that there are no capital inflows or outflows. As a result of the 12 10 8 6 increase in education spending, the equilibrium interest rate 2 D by $200 1,200 percentage points, and the 400 600 800 1,000 Quantity of loanable funds (billions of dollars) equilibrium quantity of loanable funds by billion dollars. This an example of crowding out.

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