Y = C + I + G +NX

Total demand Investmen

for domestic spending by
output (GDP) Is composed of Net expert or net
Business and foregh demand
households
Consumption
spending by
households
Goverment purchase
of good and service

This is the called the national income accounts identy

 The
TheEffect
Effectof
ofGovernment
GovernmentBudget
BudgetDeficit
Deficit
(a)
(a)The
TheMarket
Marketfor
forLoanable
LoanableFunds
Funds (b)
(b)Net
NetForeign
ForeignInvestment
Investment
Real
Real
S2S2 S1S1 Real
Interest
Interest Interest
Rate
Rate BB Rate
rr1 1
r 2r 2
r 2r 2
AA

DEMAND
DEMAND rr1 1 NFI
NFI
Quantity
QuantityofofLoanable
LoanableFuands Net
Fuands NetForeign
Foreign
Investment
Investment
Real
Real S2S2 S1S1
Exchange
Exchange
2.2.........which
which Rate
Rate E2E2
increases
increasesthe thereal
real
inteest
inteest
E1E1

DEMAND
DEMAND

Quantity
QuantityofofDollars
Dollars