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

a. 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.

b. 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:

i. new nominal interest rate

ii. new real interest rate

c. Explain how the change in real interest rates identified in part (a) would affect investment spending by businesses.