After a report by newspapers that savings was at an all time low, households begin to save more for retirement.

1. Using a correctly labeled loanable funds graph, show and explain how the change in savings will impact real interest rates in the United States in the short-run.
2. Assume the nominal interest rate is currently at 8% and there is no expected inflation. If the government announced a 3% expected inflation rate, determine the value of each of the following:
3. new nominal interest rate
4. new real interest rate
5. Explain how the change in real interest rates identified in part (a) would affect investment spending by businesses.

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