The graph shows the loanable funds market when there is neither a government budget surplus nor...

 

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The graph shows the loanable funds market when there is neither a government budget surplus nor a government budget deficit. Draw a point at the equilibrium quantity of loanable funds and the equilibrium real interest rate. Label it 1. Now suppose that the government has a budget deficit of $1 trillion. Draw a curve that shows the effect of this deficit in the loanable funds market. Label it. Draw a point at the new equilibrium real interest rate and quantity of saving. Label it 2. Draw a point to show investment when the government budget deficit is $1 trillion. Label it 3. 10- 8- 6- Real interest rate (percent per year) SLF PDLF 0 2 3 4 5 Loanable funds (trillions of 2007 dollars) >>> Draw only the objects specified in the question. The graph shows the loanable funds market when there is neither a government budget surplus nor a government budget deficit. Draw a point at the equilibrium quantity of loanable funds and the equilibrium real interest rate. Label it 1. Now suppose that the government has a budget deficit of $1 trillion. Draw a curve that shows the effect of this deficit in the loanable funds market. Label it. Draw a point at the new equilibrium real interest rate and quantity of saving. Label it 2. Draw a point to show investment when the government budget deficit is $1 trillion. Label it 3. 10- 8- 6- Real interest rate (percent per year) SLF PDLF 0 2 3 4 5 Loanable funds (trillions of 2007 dollars) >>> Draw only the objects specified in the question.

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