Copyright

The table shows an economy's demand for loanable funds schedule and supply of loanable funds...

Question:

The table shows an economy's demand for loanable funds schedule and supply of loanable funds schedule when the government's budget is balanced.

a) What is the real interest rate, the quantity of investment, and the quantity of private saving if the government's budget becomes a surplus of $1.0 trillion?

b) Is there any crowding out in this situation?

Real Interest Rate Loanable funds demanded Loanable funds supplied
4 7.0 5.0
5 6.5 5.5
6 6.0 6.0
7 5.5 6.5
8 5.0 7.0
9 4.5 7.5
10 4.0 8.0

Market for loanable funds, budget deficit and surplus.

Loanable funds are funds supplied by the households that have private saving and are demanded by the firms that need to borrow funds to make an investment.

When there is a budget surplus, the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied. When there is a budget deficit, the opposite is true.

Answer and Explanation:

a) What is the real interest rate, the quantity of investment, and the quantity of private saving if the government's budget becomes a surplus of $1.0...

See full answer below.

Become a Study.com member to unlock this answer! Create your account

View this answer

Learn more about this topic:

Loanable Funds: Definition & Theory

from Introduction to Business: Homework Help Resource

Chapter 25 / Lesson 29
62K

Related to this Question

Explore our homework questions and answer library