Consider the following participants in the market for loanable funds. Households are saving 30 + 10r billion a year for retirement. Households are also saving $50 billion a year for big life events. Government is reducing household saving by 20 through the budget deficit. Households are also borrowing 90 5r for mortgages, and businesses are borrowing 150 10r for investment purposes.

(a) 1pt Add the three sources of savings together to get the supply of loanable funds as a function of the interest rate.

(b) 1pt Rearrange the equation to solve for the interest rate as a function of the supply of loanable funds.

(c) 1pt Add the two sources of investment together to get the demand for loanable funds as a function of the interest rate.

(d) 1pt Rearrange the equation to get the interest rate as a function of the demand for loanable funds.

(e) 1pt Show that the equilibrium interest rate is 7.2%.

(f) 1pt Solve for the total market equilibrium quantity of investment (and savings - they are the same thing).

(g) 2pt Clearly sketch the market for loanable funds and clearly numerically label wherever the supply or demand curve crosses an axis. (The demand curve should touch two axes, and the supply curve should touch one axis.)

(h) 1pt Solve for the total quantity of mortgage investment.

(i) 1pt Redraw the market for loanable funds, numerically indicating points where curves cross the axes, if the government reduces the budget deficit to 0.