QUESTION 7

VERY IMPORTANT NEED ONLY 100% CORRECT ANSWER

1. 
   

   Use the following figure attached in the file below to answer question.
   
   Figure.pdf
   
   To reach the new equilibrium interest rate, what would NOT happen?

   	1.	The higher interest rate leads to a decrease in the quantity of borrowing and investing by the distance between Q1 and Q2.
   	2.	The decrease in private consumption and private investment that results from the increase in government borrowing is called crowding out.
   	3.	The higher interest rate leads to an increase in the quantity of savings (thus a decrease in consumption) by the distance between Q1 and Q3
   	4.	When the government borrows more, some of the increased borrowing is financed by higher private consumption and some by lower investment.

Figure: The bond market or the loanable funds market Interest rate S 12 X New demand Q: Q3 & D Loanable funds ($ million)