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The average inflation in India in 2010 reached 12.1%. During the same period, government deficits became large and interest rates increased. Most economists expected India's growth to slow.

a. Suppose that the Indian government reduces it's deficit and gets back to a balanced budget, if other things remain the 
same, how will the demand or the 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 and 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 ? 

Microeconomics, Economics

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