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Question 1

Consider the supply and demand diagrams for the financial market with interest rates on the vertical axis and quantity of financial capital on the horizontal axis.

Suppose that the government runs a significant budget deficit.

Which graph would most accurately predict the changes observed in the financial market as a result of this budget deficit?

Note that the new curve is shown in gray.





  Hint

Question 2

Suppose that the government of Japan is running a large budget deficit.

As a result of this, what will happen to the interest rates in Japan?

 

Hint


Question 3

Suppose that the government of Japan is running a large budget deficit.

As a result of this, what will happen to the Investment (I) and Consumption (C) in Japan?

 

Hint