Question: The table sets out the data for an economy when the governments budget is balanced. real interest rate (percent per year) Loanable funds demanded Loanable

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

real interest rate

(percent per year)

Loanable funds demanded Loanable funds supplied

(trillions of 2009 dollars)

2 8.0 4.0 3 7.0 5.0 4 6.0 6.0 5 5.0 7.0 6 4.0 8.0 7 3.0 9.0 8 2.0 10.0

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

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

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

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