In the Conanian economy:

Ask students to compute the following based on the data in the table.

1.       GDP in Conania

2.       National savings in Conania

3.       Net capital inflow into Conania

4.      The savings–investment spending identity for the Conanian economy

The Budget Balance in Conania

Answer the following questions:

1.      Assume the budget balance in Conania changes from positive to negative. What effect will this have on investment spending in Conania?

2.      Assume that while the budget balance in  Conania changes from positive to negative, net capital inflow in Conania also decreases. What impact will this have on private investment spending in Conania?

Handout 24-1 (10 Points)

Working with the Loanable Funds Market

Have students draw graphs to explain what happens to the equilibrium interest rate in each of the following cases:

1.      A breakthrough in medical technology results in many hospitals wanting to buy new equipment.

2.      The government budget deficit is reduced by 50%.

3.       Foreign investors buy residential property in the United States.

4.       People around the world are worried about financial stability in their countries and choose to move their wealth to U.S. financial markets.