Suppose the government of Bahrain borrows BD100 million more next year than this year.

1. What happens to supply-demand of loanable funds in Bahrain? Use supply-demand diagram to show the changes in loanable fund.
2. What happens to the rate of interest rate due to the rise in borrowing by the government? If interest rate decrease/increase who this change in interest rate affect the prices of securities in Bahrain.
3. Use the website of the central bank of Bahrain and extract data about interest rate for the last two years. Explain how interest rate changed and why.
4. Inflation is another factor that may influence interstate. Can you use the same website (i.e. central bank website) to obtain data about inflation in Bahrain in the last 5 years? Explain how inflation affect (a) personal income, (b) savings, (c) interest rate and (d) prices of financial assets.