Refer to the table below to answer the following question.
Table 7.3.4
-Table 7.3.4 shows an economy's demand for loanable funds schedule and the private supply of loanable funds schedule when the government's budget is balanced.If the government budget deficit becomes $1.0 trillion, the real interest rate is _______ percent a year, the quantity of investment is _______ trillion, and the quantity of private saving is _______ trillion.

Question

Refer to the table below to answer the following question.
Table 7.3.4 
-Table 7.3.4 shows an economy's demand for loanable funds schedule and the private supply of loanable funds schedule when the government's budget is balanced.If the government budget deficit becomes $1.0 trillion, the real interest rate is _______ percent a year, the quantity of investment is _______ trillion, and the quantity of private saving is _______ trillion.

Quizplus · Accepted Answer

A government budget deficit causes an increase in demand for loanable funds, which shifts the demand curve to the right. This will increase the equilibrium interest rate and quantity of investment, but decrease the quantity of private saving. 
Looking at Table 7.3.4, we can see that a $1.0 trillion government budget deficit would shift the demand curve to the right from D1 to D2. The new equilibrium would be at an interest rate of 5% and a quantity of investment of $6.5 trillion. To find the new quantity of private saving, we need to look at where the supply curve intersects with the new demand curve. This occurs at a quantity of $7.5 trillion. Therefore, the answer is C) 5% real interest rate, $6.5 trillion investment, and $7.5 trillion private saving.

Refer to the Table Below to Answer the Following Question