For all graphs in question 3, be sure to label all curves and axes carefully. Show both initial equilibrium and final equilibrium values, making sure that curve shifts and/or movements along a curve are marked.
a. (8 %) Show and explain what happens to real interest rates and real domestic investment in the market for loanable funds if there is an increase in demand for U.S. Treasury bills by Chinese and Japanese households and businesses --- an increase that is unrelated to American interest rates.
b. (8 %) Show and explain what happens to real wage rates and the size of the labor force in the labor market following an earthquake that destroys a large amount of the capital stock (but hurts no people).
c. (8 %) Following a sharp decrease in the money supply caused by Fed policy (as experienced on the Planet of Hermes, for example), show and explain what happens in the market for goods and services to both the national price level and real GDP in both the short run and the long run --- assuming no further government policy.