I. The following table shows the observed pairs of interest rate and quantity of loanable funds (in billions of dollars] in an economy Initially, the government collects tas revenues of $300 billion and spends $340 billion. Interest Desired Desired Desired Rate Borrowing Private National Lending Lending 400 280 120 45 240 200 i. Determine the initial public saving and fill in the fourth column in the table above. b. On the coordinate plane below, mark the pairs of interest rate and quantity of loanable funds that borrowers want to borrow and then connect the pairs. Which market force do the con- nected pairs represent? Do the same for the pairs of interest rate and quantity of loanable funds that lenders want to lend. Intment Rate 180 200 240 280 320 5340 600 440 480 Quantity of Losuable Funds, Billion Dollars E At what interest rate does the market for loanable funds clearY, What in the level of saving and investment in the economy at the equilibrium interest rate? d. Suppose now that the government decides to increase its level of spending from $340 billion to $420 billion (any on education to pay higher salaries to public school teachers). Add a new tohimn to the table above and determine the new quantity of loanable funds that lenders want to lend at the interest rates shown in the table. How can the government increase its spending without raising tax revenues concomitantly? F. Mark the data points in the new column on the coordinate plane above. What effect would the increased government spending have on the interest rate? Explain why. Why does it matter that the interest rate can adjust freely in the market for loanable funds? What is the new equilibrium interest rate? What is the level of saving and investment in the Pourinany at the new equilibrioun interest rate? What is the now level of private saving? How does it compare with its initial level? Explain In what sense one might or might not be worried about the outcome! Discuss