1. Use a saving-investment diagram to explain what happens to saving, investment, and the real interest rate in each of the following scenarios in a closed economy.

a. Current output rises due to a temporary productivity increase.

b. The tax code changes so that business firms face higher tax rates on their revenue (offset by other lump-sum tax changes so there’s no overall change in tax revenue).

c. The government increases spending temporarily for a one-year project to turn mercury into gold.

d. The average educational level rises, inducing an increase in the future marginal productivity of capital.