ECON

A closed economy does not enteract with other countries so net exports

are zero

An increase in the government's budget surplus means

public saving is greater than $0 and increasing.

An increase in the government's budget deficit means

public saving is less than $0 and decreasing.

A policy that induces people to save more shifts

the supply of loanable funds and reduces interest rates.

A policy that induces people to save more shifts

the supply of loanable funds rightward and increases investment.

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

(Interest rate = Nominal - Inflation) 9.5

A budget deficit

Changes supply of loanable funds

Closed economy

Does not trade with other economies

According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would

Lower private savings and raise public saving

Budget Surplus

Reduces government debt

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Sophia will have 5 percent more money, which will purchase 3 percent more goods.

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment.

higher interest rates, borrowing, lead to

in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment.

National saving

is the total income in the economy that remains after paying for consumption and government purchases.

A decrease in the budget deficit

makes investment spending rise