The above table has the private demand for loanable funds and the private supply

Question

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 ________.

4 percent; $500 billion Demand for loanable funcSupply of loanable func (billions of 2009 dollars) 750 700 (billions of 2009 dollars) 450 500 550 600 Real interest rate (percent per year) 3 600 550 500 450 700 750 9

Explanation / Answer

Answer.) 4 percent; $500 billion.

The equilibrium real interest rate becomes 4 percent from 6 percent due to presence of budget surplus of $200 billion, the quantity of investment is $700 billion, and the quantity of private saving is $500 billion.

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