Consider the market for loan able funds, which determines the real interest rate in the long run.
Question:
a. As usual, draw the supply and demand for loans as functions of the pretax real interest rate, r.
b. Suppose savers are taxed on their nominal interest income. If inflation rises, what happens to the supply and demand curves in part (a)?
c. What happens to the equilibrium levels of the pretax real interest rate, loans, and investment?
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Step by Step Answer:
a Figure 42 shows the graph of the loan able funds market The equilibrium real interest rat...View the full answer
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