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Use the table in Problem 10 to work Problems 13 to 15.

Suppose that the quantity of loanable funds demanded increases by $1 trillion at each real interest rate and the quantity of loanable funds supplied increases by $2 trillion at each interest rate.

13.If the government budget is balanced, what are the real interest rate, the quantity of loanable funds, investment, and private saving? Does any crowding out occur?

Real interest

rate

Loanable funds demanded

Loanable funds
supplied

(percent per year)

(trillions of 2005 dollars)

4

9.5

7.5

5

9.0

8.0

6

8.5

8.5

7

8.0

9.0

8

7.5

9.5

9

7.0

10.0

10

6.5

10.5

14.If the government budget becomes a deficit of $1 trillion, what are the real interest rate, the quantity of loanable funds, investment, and private saving? Does any crowding out occur?

15.If governments wants to stimulate investment and increase it to $9 trillion, what must it do?

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