If the government budget remains balanced, what are the real interest rate, investment, and private saving? Does any crowding out occur?

Use the loanable funds data in Problem 8 and the following data to work Problems.

Suppose that the quantity demanded increases by $1 trillion at each real interest rate and the quantity supplied increases by $2 trillion at each interest rate.

Problem 8

The table sets out the data for an economy when the government’s budget is balanced.

a. Calculate the equilibrium real interest rate, investment, and private saving.

b. If planned saving increases by $0.5 trillion at each real interest rate, explain the change in the real interest rate.

c. If planned investment increases by $1 trillion at each real interest rate, explain the change in saving and the real interest rate.

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Real interest rate (percent per year) 4567899 10 Loanable funds demanded Loanable funds supplied (trillions of 2012 dollars) 5.5 6.0 6.5 7.0 7.5 8.0 8.5 8.5 8.0 7.5 7.0 6.5 6.0 5.5