(Answered) 1 analyse the effects of the following events using the

Management Studies

1. Analyse the effects of the following events using the loanable fund market diagram where we have (real) interest rate on the vertical axis and the quantity of loanable fund on the horizontal axis. Please ensure to explain what happens to saving, investment and (real) interest rate.

a) Consumers decide to save more to prepare themselves for the future (at any given interest rate). Assume the government budget balance is zero.

Answer here (Tips: to create new lines, simply copy the existing curves and move to the new location)

Real Interest Rate (r)

Quantity of Loanable Funds (Q)

Supply¹

Demand¹

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