Demand for loanable funds

Supply for loanable funds

$\bf{\it{L_2}}$

$\bf{\it{i_2}}$

     Real
interest
       rate

1. When the
    government begins
    running a budget
    deficit, the supply of
    loanable funds is
    reduced . . .

2. . . . increasing
    the equilibrium
    interest rate . . .

3. . . . and decreasing
    the equilibrium
    quantity of loanable
    funds.

Supply for loanable funds

$\bf{\it{L_1}}$

$\bf{\it{i_1}}$

     Real
interest 
       rate

Quantity of Loanable funds
         (dollars per year)

Demand for loanable funds

Supply for loanable funds

Impact of a budget deficit on the equilibrium

Demand = 7.090000000000001 (slider from 7 to 8, step 0.01)
D = If(1 ≤ x ≤ 8, -0.8 * x + Demand)
Supply = 0.018 (slider from 0 to 1, step 0.0010)
S = If(1 ≤ x ≤ 8, 0.8 * x + Supply)
Equilibrium = Intersect(D, S, (4.420000000000001, 3.554))
P: (x(Equilibrium), 0)
Q: (0, y(Equilibrium))
a = Segment(Equilibrium, P)
b = Segment(Q, Equilibrium)
S_1 = If(1 ≤ x ≤ 8, 0.8 * x)
A = Intersect(D, S_1, (4.43125, 3.5450000000000004))
X: (x(A), 0)
Y: (0, y(A))
c = Segment(Y, A)
d = Segment(A, X)
u = Vector((0, 0), (0, 8))
v = Vector((0, 0), (9, 0))