Question

Please just draw the graphs. No need to explain/write out the rest. Thanks!

1. Assume that national savings in the United States increases. Using a correctly labeled loanable funds graph and production possibilities curve, show and explain the impact of the increase in each of the following. savings on L interest rates Long-term economic growth for goods an economy producing capital and consumer 11. b. If the interest rates in the rest of the world remain unchanged, explain the impact of the change you identified in part (a) the international value of the dollar c. Based on your answer for part (b), explain what happens to imports and exports in the United States.

Answer 1

Loanable funds curve

See the diagram at the end of the answer

• Vertical axis is the “real interest rate” or “r.i.r.” , horizontal axis is the Quantity of loanable funds. A downward sloping demand curve and an upward sloping supply curve. An equilibrium real interest rate and equilibrium quantity is labeled on the axis

Any change in the interest rate that occurs in this model will have a different impact in the short run than in the long run. In the short-run, decreases in the interest rate would cause aggregate demand to increase because there is more investment spending. In the long run, more investment spending will cause the long run aggregate supply curve to increase as well.

Production Possibilities curve

A curve showing all possible combinations that can be produced given the current stock of capital, labor, natural resources, and technology. A straight line represents constant opportunity costs, and a bowed out line represents increasing opportunity costs.
гi.гл Equilibrium real interest rate SLF DLF QLF 71

PPC curve PPC1 Capital goods Consumption goods