Question

The following table provides the quantity demand and supply of loanable of a small economy. The data are given in million dollar.

Real interest rate (%)	Quantity demanded loanable fund	Quantity supplied loanable fund
2	140	20
3	120	40
4	100	60
5	80	80
6	60	100
7	40	120
8	20	140

Answer these questions with explanation.

1. Determine the equilibrium real interest rate and quantity of loanable fund.
2. Describe the market condition and the real interest adjustment at a real interest rate of 3%. Be sure to provide a complete illustration.
3. Describe the market condition and the real interest adjustment at a real interest rate of 6%. Be sure to provide a complete illustration.
4. Suppose investors are optimistic resulting in a $40 million increase in the quantity demanded loanable fund at each level of real interest rate. Determine the new equilibrium real interest rate and quantity of loanable fund. Explain the impact of this event on the real interest rate and the quantity of loanable fund.