For all graphs, be sure to correctly and completely label all axes and curves and use arrows to indicate the direction of any shifts.

1. Assume that an economy is in a short-run macroeconomic equilibrium and experiences a positive demand shock.

a. Using a correctly labeled graph of the money market, illustrate the impact of the positive demand shock.

2.

For all graphs, be sure to correctly and completely label all axes and curves and use arrows to indicate the direction of any shifts.

The loanable funds market in an economy is in equilibrium.

a. Draw a correctly labeled graph of the loanable funds market, labeling the equilibrium real interest rate and the equilibrium quantity.

b. Show the impact of a decrease in household savings for this economy in your graph from part (a).

c. Will the result be a shortage or surplus in the loanable funds market at the original equilibrium?

d. Will lenders of existing fixed-rate loans be better or worse off as a result of the change in the real interest rate?

e. How will investment spending on facilities and equipment in this economy be impacted? Explain.