Loanable Funds Market -Government Spending Leads to the Loanable Funds Market -Represents money in commercial banks and lending institutions that is available.

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Loanable Funds Market -Government Spending Leads to the Loanable Funds Market -Represents money in commercial banks and lending institutions that is available to finance investment or consumption

2013 AP Macro FRQ (b) Assume that personal savings in the United States increase. Using a correctly labeled graph of the loanable funds market, show the impact of the increase in personal savings on the real interest rate. (c) Based on the real interest rate change identified in part (b), (i) will interest-sensitive expenditures increase, decrease, or remain unchanged? (ii) what will happen to the rate of economic growth? Explain.

2010 AP Macroeconomics FRQ (d) In order to finance the increase in government spending on national defense from part (b), the government borrows funds from the public. Using a correctly labeled graph of the loanable funds market, show the effect of the government’s borrowing on the real interest rate. Given the change in the real interest rate in part (d), what is the impact on each of the following? (i) Investment (ii) Economic growth rate. Explain.