[Requires appendix.] Suppose that Classica has international trade, but it is running a trade surplus (X > IM) rather than a trade deficit as in the appendix.
Suppose, too, that Classica’s government is running a budget deficit.
a. Draw a diagram for Classica’s loanable funds market, being careful to include the trade surplus in the label for one of the curves.
b. Label the initial equilibrium point A.
c. Give an equation showing that, in equilibrium, the quantity of loanable funds demanded (on one side) is equal to the quantity of loanable funds supplied (on the other side).
d. Rearrange your equation to show that, even when Classica runs a trade surplus, its leakages and injections are equal.