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Explain how the change in real interest rate

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The federal budget deficit grew 25% in the first four months of the fiscal year...The U.S. budget gap totaled $389 billion from October through January, compared with $310 billion in the same period a year earlier, the U.S. Treasury Department said on Feb 11.

(a) Explain, with an aid of diagram, how the increase in budget deficit in U.S. might affect the loanable funds market and how it would impact the real interest rate.

(b) Using the same diagram, or otherwise, explain how the change in real interest rate might affect private consumption and planned investment. Hence, explain how the increase in budget deficit in U.S. might affect long-run economic growth?

Reference no: EM132479075

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