Question

In: Economics

4. Write out the equation for the demand and supply of loanable funds or the savings...

4. Write out the equation for the demand and supply of loanable funds or the savings identify. Use this equation/identity to briefly describe how changes in government budgets can affect the trade balance. Include any assumptions you make about the other components of the demand and supply of savings.

Solutions

Expert Solution

GDP = C(Y-T) + I(r) + G + NX

Present Value : PV = FV / (1 + r)n

The demand for loanable funds is determined by the demand from the business sector, from Investment , I .

Supply of loanable funds = total savings = private savings + public savings + foreign savings .

A government budget deficit reduces public savings , so overall total savings fall . So supply of loanable funds reduces .


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