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Assuming everything else constant, what would happen to equalibirum real interest rates and equalibrium quantity of...

Assuming everything else constant, what would happen to equalibirum real interest rates and equalibrium quantity of loans traded, if there is an increase in expected future income in the exonomy (consumers expect higher levels of future income)?
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Answer #1

If consumers are expecting increased future income they will be likely to spend more in the current period. Their consumption increases which decreases private saving. As a result National saving will fall and the supply curve in the loanable funds market will be shifting to the left.

Real rate of interest will be higher and quantity of loanable funds traded will be reduced at the new equilibrium

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