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* * Question 4 (Quiz) a. What are loanable funds? What determines the demand for loanable funds? What determines the supply of loanable funds? (3 marks) b. Suppose the economy is currently in a recession and that economic forecasts indicate that the economy will soon enter an expansion. What is the likely effect of the expansion on the expected profitability of new investment in plant and equipment? In the market for loanable funds, graph and explain the effect of the forecast of an economic expansion, assuming borrowers and lenders believe the forecast is accurate. What happens to the equilibrium real interest rate and the quantity of loanable funds (ceteris paribus)? What happens to the quantity of saving and investment? (4 marks) c. Use a market for loanable funds graph to illustrate the effect of the federal budget surplus. What happens to the equilibrium real interest rate and the quantity of loanable funds