a. Write out the supply of loans formula and use it to show what will happen to the supply of loans if private saving rises, then complete this sentence: If private saving rises, the supply of loans curve will ____________________________.
b. What effect will the change in part “a” have on the real interest rate?
It will make the real interest rate ____________________________.
c. Draw a graph showing the loan market in equilibrium. Show the changes you described in parts “a” and “b.” Be sure to label each axis, all curves, and the initial and final real interest rates.
d. Write out the supply of loans formula and use it to show what will happen to the supply of loans if capital outflows rise, then complete this sentence: If capital outflows rise, the supply of loans curve will ____________________________.
e. What effect will the change in part “d” have on the real interest rate?
It will make the real interest rate ____________________________.
f. Draw a graph showing the loan market in equilibrium. Show the changes you described in parts “d” and “e.” Be sure to label each axis, all curves, and the initial and final real interest rates.