Assume the government starts with a balanced budget and then, because of an increase in government spending (and/or decrease in taxes), starts running a budget deficit. Use the loanable funds model to analyze the effects of a government budget deficit: 1. (5 points) Draw the diagram showing the changes in equilibrium. What happens to the equilibrium values of the interest rate and investment? • For this, I need you to draw your diagram, scan it, and attach it to the text box below with your response for #2. Please be specific and include the labels in the construction of your graph. 2. (5 points) Analyze the effects of a budget surplus.
