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1. Suppose the market for loanable flmds is in equilibrium. Assume now that the gov ernment increases its expenditures and that it nances them with

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1. Suppose the market for loanable flmds is in equilibrium. Assume now that the gov ernment increases its expenditures and that it nances them with an equal increase in taxes. (a) Assuming that consumption depends not only on disposable income but also on the interest rate (negatively): explain how the government policy,r above affects the interest rate and the quantity of funds loaned. (Assume, of course, that M PC

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