Suppose Canada is a closed economy and in its long-run equilibrium initially. The government increases its subsidy to new capital investment projects. At the same time, the shortage of computer chips/semiconductors forces many manufactures to delay their spending on replacing depreciated machinery and equipment.

In the context of the long-run classical model, examine the effects of the above events on the following variables in the long run:

• output
• real interest rate
• national savings
• real rental price of capital
• price level

Explain and support your answer by ONE diagram for the market of loanable funds and ONEdiagram for the rental market for capital.