Briefly explain what happens to the world real
interest rate if the government of Monaco runs a
large government budget deficit.
Suppose this graph represents the demand and
supply of loanable funds in the United States. Use
the graph to answer the following questions.
a. If the world real interest rate is 5%, explain
what would give foreign borrowers an incentive
to offer lenders in the United States an
interest rate greater than 5%.
b. If the world real interest rate is 5%, explain
what would give foreign lenders an incentive
to offer borrowers in the United States an
interest rate less than 5%.