Consider the market for financial capital and the relationship among saving, investment, and the interest rate. In what follows, assume that the economy is in a long-run equilibrium with \(Y=Y^{*}\).

a. Suppose the government wants to encourage national saving. How could it do this, and what would be the effects of such a policy? Illustrate in a diagram.

b. Suppose instead that the government wants to encourage investment. How might this be accomplished, and what would be the effects? Illustrate in a diagram.

c. It is often heard in public debate that "high interest rates are bad for investment and growth." Is this true? Can you come up with a simple rule of thumb to describe the relationship between interest rates, investment, and growth?