The table sets out data for an economy when the government's budget is balanced

Economics Mar 08, 2021

The table sets out data for an economy when the government's budget is balanced.
Loanable Loanable funds funds Real interest demanded supplied rate (percent per (billions of 2007 dollars) year)
4 8.5 5.5 5 8.0 6.0 6 7.5 6.5 7 7.0 7.0 8 6.5 7.5 9 6.0 8.0 10 5.5 8.5
a) Calculate the equilibrium real interest rate, investment, and private saving.

Expert Solution

Computation of Equilibrium Real Interest Rate, Investment and Private Savings:

Equilibrium interest is the interest rate where loanable funds demand is equal to loanable fund supply.

We can see from table, at an interest rate of 7%, Loanable funds demand= Loanable fund supply=7 billion

Therefore, equilibrium interest rate will be 7%

Loanable fund demand is equal to investment=7 billion

Loanable fund supply is equal to saving= 7 billion

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