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)7REAL INTEREST RATE1020605432National Saving(Billions of dollars)45402035302520Given 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.Market for Loanable Funds4060QUANTITY OF LOANABLE FUNDS80Domestic Investment(Billions of dollars)303540455010055。Net Capital Outflow(Billions of dollars)-15-10-50DemandSupply+5Equilibrium10 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 Outflow-51084219-15-10051015NET CAPITAL OUTFLOW (Billions of dollars)20NCOEqm. NCOBecause 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.After the budget deficit occurs, suppose the new equilibrium real interest rate iscurrency exchange market.Use the green line (triangle symbol) to show the supply curve in this market befshow the supply curve after the budget deficit.national saving will increasenational saving will decreasedomestic investment will increasedomestic investment will decrease, which leads toemand curve in the foreign-purple line (diamond symbol) to

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.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 5PA

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