2. Please use the loanable funds model to analyze the effects of a government budget deficit (you can attach a copy of your graph showing your work): A. Draw the diagram showing the initial equilibrium. B. Determine which curve shifts when the government runs a budget deficit. C. Draw the new curve on your diagram. D. What happens to the equilibrium values of the interest rate and investment?
DONOT ANSWER QUESTION 1 ONLY 2,
• Analyze the effects of a government budget deficit.
• Examine how the interest rate is determined in a variety of scenarios.
• Synthesize knowledge of saving, investment, and the financial system.
Government budget and national saving:
1. Suppose that
The model of loanable funds:
2. Please use the loanable funds model to analyze the effects of a government budget deficit (you can attach a copy of your graph showing your work):
A. Draw the diagram showing the initial equilibrium.
B. Determine which curve shifts when the government runs a budget deficit.
C. Draw the new curve on your diagram.
D. What happens to the equilibrium values of the interest rate and investment?
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