Consider a closed economy’s market for loanable funds. a) Write down the equation that represents the...

Consider a closed economy’s market for loanable funds.

a) Write down the equation that represents the equilibrium condition for this market. What is the “price” variable in this market? How does it adjust to ensure equilibrium in this market?

b) Use the demand-supply diagram to illustrate the market for loanable funds, and make sure you label both axes and identify the equilibrium point on the graph. Use the graph to illustrate how an increase of government spending will affect savings, investments, real interest rate, and output. Explain crowding out effect using your results.

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Rahul Sunny answered 2 years ago

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