Assume that as a result of the lockdown during the Covid-19 pandemic households have reduced their consumption, but by less than their incomes have fallen.For this question, assume that government spending and taxes have been unchanged during the pandemic.Using the market for loanable funds examine the impact of this on the real interest rate and investment.

Answer this question first assuming that USA is a closed economy and then again assuming that USA is a small open economy with perfect capital mobility.In the second case, you should alsoexplain the effect on net capital outflows anduse the market for foreign exchange and examine the impact on the real exchange rate and net exports.

Illustrate your answers with three diagrams. One showing the impact in the market for loanable funds in a closed economy, one showing the impact in the market for loanable funds in a small open economy with perfect capital mobility, and one showing the market for foreign exchange