Use the classical model of a closed economy to predict how each of the following shocks should affect a nation’s real aggregate income (Y), national saving (S), investment (I), and interest rate (r). Be sure in each case to clearly state your predicted direction of change (up, down, or no change) for all four variables and illustrate your predictions for S, I and r with a supply/demand diagram for the loan able funds market.

a) The supply of capital (KS) increases 


b) The supply of labor (LS) decreases 


c) Income taxes (T) are reduced 


d) Autonomous investment (i0) increases 


Answer rating: 100% (QA)

a As the supply of capital increases the demand for loan able funds decreases It shifts down th... View the full answer