$$\begin{array} { c c c }
\begin{array} { c }
\text { Real interest rate } \
\text { (percent per year) }
\end{array} & \begin{array} { c }
\text { Demand for loanable funds Supply of loanable funds } \
\text { (billions of } \
\text { 2005 dollars) }
\end{array} & \begin{array} { c }
\text { (billions of } \
\text { 2005 dollars) }
\end{array} \
\hline 3 & 750 & 450 \
4 & 700 & 500 \
5 & 650 & 550 \
6 & 600 & 600 \
7 & 550 & 650 \
8 & 500 & 700 \
9 & 450 & 750
\end{array}$$
-The above table has the private demand for loanable funds and the private supply of loanable funds schedules.If the government budget surplus is $200 billion, and there is a Ricardo-Barro effect, the equilibrium real interest rate is ________ and the equilibrium quantity of loanable funds is ________.

Question

$$\begin{array} { c c c } 
\begin{array} { c } 
\text { Real interest rate } \
\text { (percent per year) }
\end{array} & \begin{array} { c } 
\text { Demand for loanable funds Supply of loanable funds } \
\text { (billions of } \
\text { 2005 dollars) }
\end{array} & \begin{array} { c } 
\text { (billions of } \
\text { 2005 dollars) }
\end{array} \
\hline 3 & 750 & 450 \
4 & 700 & 500 \
5 & 650 & 550 \
6 & 600 & 600 \
7 & 550 & 650 \
8 & 500 & 700 \
9 & 450 & 750
\end{array}$$
-The above table has the private demand for loanable funds and the private supply of loanable funds schedules.If the government budget surplus is $200 billion, and there is a Ricardo-Barro effect, the equilibrium real interest rate is ________ and the equilibrium quantity of loanable funds is ________.

Quizplus · Accepted Answer

The Ricardo-Barro effect suggests that a government budget surplus increases the supply of loanable funds by the amount of the surplus. With a $200 billion surplus, the supply at each interest rate increases by $200 billion. At a 6% interest rate, the adjusted supply becomes $800 billion, matching the demand, thus setting the equilibrium at 6% and $600 billion.

-The Above Table Has the Private Demand for Loanable Funds