The table sets out the data for an economy when the government's budget is balanced. The quantity of loanable funds demanded increases by $1.5 billion at each real interest rate and the quantity of loanable funds supplied increases by $0.5 billion at each interest rate. If, at the same time the government budget becomes a deficit of $1.0 billion, what are the real interest rate and investment? Does any crowding out occur? >>> Answer to 1 decimal place. The real interest rate is Investment is $ billion. There O A. is; C... percent a year. crowding out in this situation because O B. is no; the deficit increases the real interest rate, which decreases investment investment is $6.5 billion. Real interest rate (percent per year) 4 5 6 7 8 9 10 Loanable funds Loanable funds demanded supplied (billions of 2007 dollars) 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.5 5.0 5.5 6.0 6.5 7.0 7.5

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter21: Financial Markets, Saving, And Investment
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The table sets out the data for an economy when the government's budget is balanced.
The quantity of loanable funds demanded increases by $1.5 billion at each real interest rate
and the quantity of loanable funds supplied increases by $0.5 billion at each interest rate.
If, at the same time the government budget becomes a deficit of $1.0 billion, what are the real
interest rate and investment?
Does any crowding out occur?
>>> Answer to 1 decimal place.
The real interest rate is
C ...
percent a year.
Investment is $ billion.
There crowding out in this situation because
O A. is;
OB. is no;
the deficit increases the real interest rate, which decreases investment
investment is $6.5 billion.
Real
interest rate
(percent
per year)
4
5
6
7
8
9
10
Loanable funds Loanable funds
supplied
demanded
(billions of 2007 dollars)
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Transcribed Image Text:The table sets out the data for an economy when the government's budget is balanced. The quantity of loanable funds demanded increases by $1.5 billion at each real interest rate and the quantity of loanable funds supplied increases by $0.5 billion at each interest rate. If, at the same time the government budget becomes a deficit of $1.0 billion, what are the real interest rate and investment? Does any crowding out occur? >>> Answer to 1 decimal place. The real interest rate is C ... percent a year. Investment is $ billion. There crowding out in this situation because O A. is; OB. is no; the deficit increases the real interest rate, which decreases investment investment is $6.5 billion. Real interest rate (percent per year) 4 5 6 7 8 9 10 Loanable funds Loanable funds supplied demanded (billions of 2007 dollars) 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.5 5.0 5.5 6.0 6.5 7.0 7.5
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