Q1. What do you mean by Government Budget Deficit? Explain how it affects the interest rates and private investment?
Q2. Assume that a sudden collapse in the stock exchange of economy is expected to decrease the future profitability of the firms of economy. Make loanable funds market in a closed economy and describe the effect of it on the rate of interest and investment.
Q3. Make the loanable funds market in the context of the open economy by supposing that the home country is a small open economy. Describe the effect of a raise in the government budget deficit in the home country. In this context recognize the twin deficit.
Q4. Make a loanable funds market in the context of the open economy supposing that the home country is small open economy. Describe the effect of a raise in the government expenditure (on expansionary fiscal policy) in the foreign country on the home country’s loanable fund market.
Q5. The economic recovery in India in the decade of 1980s was driven by the emergence of big fiscal and trade deficit. This had the final effect of increasing the real interest rate and crowding out private investment. Describe the above phenomenon by the help of the loanable funds in that way.