12. Problems caused by excessive government deficits Aa Aa The following graph s
ID: 1216743 • Letter: 1
Question
12. Problems caused by excessive government deficits Aa Aa The following graph shows the loanable funds market for the economy of Spendopia. One of the loanable funds demand curves is for last year (YO), while the other is for this year (Y1). The supply of loanable funds remained constant over the period, as did private demand for them. This year, the Spendopia government budget deficit (financed by borrowing) is $150 billion, whereas the government budget was balanced last year INTEREST RATE [Percent] 4.0 YO Equilibrium Supply 3.5 3.0 Y1 Equilibrium 2.5 2.0 1.5 1.0 0.5 0.0 0 50 100 150 200 250 300 350 400 QTY. OF LOANABLE FUNDS (Billions of dollars] Help Clear ALL On the graph, place the black X symbol (YO Equilibrium) at last year's loanable funds market equilibrium and place the red cross symbol (Y1 Equilibrium) at this year's loanable funds market equilibrium Fill in the box that follows to indicate how much private investment has been crowded out this year as a result of Spendopia's government budget deficit billion Suppose that Spendopia's government budget deficit for year 1 grows at a faster pace than its economy for several decades. This may cause its future difficult for Spendopia's government to to become excessive. It may become so that it might have to . Such a scenario would likely lead Spendopia intoExplanation / Answer
Private investment crowded out = $150 million
Answer 1:
Government debt
Answer 2:
Make its interest payments
Answer 3:
Default on its debt
Answer 4:
Deep financial and economic turmoil
Answer 5:
Severe Inflation
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