Consider the market for loanable funds in a closed economy.

State, and illustrate on a diagram of the loanable funds market (using a separate diagram for each case), how thereal interest rateand thequantity of loanable fundschange in the following cases, respectively:

1. Case 1:an increase in the government's budget deficit[4 marks]
2. Case 2:an investment tax credit[4 marks]

[Note:Your answerwill contain twoneatly drawn and labelled diagrams for the impacts of a budget deficit and for the impacts of an investment tax credit. On these diagrams, indicate the changes tothe interest rateandthe quantity of loanable funds.]

1. Describe what is similar in both cases, and what is different.[2 marks]

[Hint: if you draw the diagrams correctly, the answers to the questions should follow easily from them.]

Upload your diagrams and written answers to question 11 inone pdffile (see below).