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Retired people generally save less than working people at any interest rate. The proportion of retired people in the population goes up. NOMINAL INTEREST RATE S2 S1 QUANTITY OF LOANABLE FUNDS The change to the population wil decrease the equilibrium interest rate andincrease investment spending

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Answer : For first blank space : increase ; For second blank space : decrease .

Based on given informations the number of retired peoples increases in the whole population. Retired peoples save less than the working peoples. As the number of retired people is higher in whole population and they save less, hence the supply of loanable funds decrease. As a result the supply curve of loanable market shift to the leftward which increases the equilibrium nominal interest rate. At higher interest rate the quantity demanded for loanable funds decrease. As demand for loanable funds decreases, hence people spend less on investment.

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