Question

he SLF curve is the supply of loanable funds curve and the PSLF curve is the private supply of loanable funds curve. The equilibrium interest rate is ________ percent, the equilibrium quantity of loanable funds is ________, and the government has a budget______.

Answer 1

The equilibrium interest rate is 5 percent, the equilibrium quantity of loanable funds is increased to $250 billion and the government has a budget $100 billion.

Explanation:

The government enters the market when it has a surplus. The tendency of government budget is to rise the real interest rate and decrease investment. The private supply of the loanable funds will increase to match the quantity of loanable funds based on the government demand.

when the Government surplus is for $100 billion a year, the equilibrium interest rate falls to 5 percent and the equilibrium quantity of loanable funds increases to $250 billion a year.

Thus, The SLF curve is the supply of loanable funds curve and the PSLF curve is the private supply of loanable funds curve. The equilibrium interest rate is increased to 5 percent, the equilibrium quantity of loanable funds is $ 250 billion and the government has a budget of $100 bilion.