Question: Starting from the situation in the table, the demand for loanable funds increases by $2 trillion at each level of the real interest rate and

Starting from the situation in the table, the demand for loanable funds increases by $2 trillion at each level of the real interest rate and the supply of loanable funds increases by $1 trillion at each interest rate.
a. If the government budget has neither a surplus nor a deficit, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation?
b. If the government budget deficit is $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation?
c. If the government wants to stimulate the quantity of investment and increase it to $10 trillion, what must it do?

Real interest rate (percent per year) 4 Demand for Supply of loanable funds loanable funds (trillions of 2005 dollars per year) 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.5 6.0 6.5 7.0 7.5 8.0 8.5 6 10

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