After a report by newspapers that savings were 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.