1. Let the following be a production function for a firm where I represents a real investment in the current period and Y represents real output in the following period.

I	3	4	5	6	7	8	9	10	11	12	13
Y	12	15	17	18.8	20.4	21.8	23.1	24.3	25.45	26.55	27.6

a. If the real interest rate is 15%, how much will this firm invest? What will their profit be in the next period?

b. Write a schedule representing this firms demand for investment depending on the real interest rate.

c. If the expected inflation rate is 5%, write this firms demand schedule for investment depending on the nominal interest rate.

2. On a graph of the market for loanable funds, show the effect of people becoming less patient (less willing to give up consumption today for consumption in the future) on the real interest rate and the level of real investment.