In the loanable funds market in problem 5, the quantity of loanable funds demanded increases by1 trillion at each real interest rate and the quantity of loanable funds supplied increases by2 trillion at each real interest rate.
a. 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?
b. If the government budget becomes a deficit of1 trillion, what are the real interest rate, the quantity of loanable funds, investment, and private saving? Does any crowding out occur?
c. If the government wants to stimulate the quantity of investment and increase it to9 trillion, what must they do?
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