Suppose the (imaginary) country of Islandia witnesses an increase in the demand for loanable funds, driven by a recovery from an economic crisis that hit the country few years ago.

a) b) Show this development using a graph representing the market for loanable funds of the economy of W. Make sure to label the variables represented on the X-axis and Y-axis of the graph clearly. Also mark the curves in the graphs clearly indicating what they represent (i.e. demand or supply of loanable funds) (3 marks). Answer ourGra h How will this development affect the equilibrium quantity of national savings and investment for the economy of Wig? What happens to interest rates? Explain in writing and show the new equilibrium in the graph drawn in part (a) (3 marks). Answer Will the equilibrium quantities of savings and investment change by more or less than the initial change in the demand? Explain the reasons/arguments for your answer (4 marks)