In 2008, India experienced a surge inflation exceeding 11 percent, large government deficits, and rising interest rates. Most economists expected India's growth to slow.
a. Suppose that the Indian government reduces its deficit and gets back to a balanced budget. If other things remain the same, how will the demand or supply of loanable funds in India change?
b. With economic growth forecasted to slow, future incomes are expected to fall. If other things remain the same, how will the demand or supply of loanable funds in India change?
c. Distinguish between the crowding-out effect and the Ricardo-Barro effect. How are the two effects related?