In the classical loanable funds model, the interest rate (i) is determined by the equilibrium of investment (I which positively related to interest) and savings (S which is inversely related to interest). Your modeling decisions for the following should be consistent with this theory.

(a) Create linear functions for I and S in terms of i and parameters for slopes and y-intercepts. You may use any symbols for your parameters but do not use actual numbers.

(b) Describe the expected values for your parameters. Are they negative, positive, ambiguous?

(c) Are your linear functions behavioral, idenities, or equilibrium conditions? Explain.

(d) Graph your Savings function with i on the vertical axis. Come up with one hypothetical exogenous change that could change the intercept or slope. Describe this change and illustrate the effect graphically.

(e) In terms of your parameters find equilibrium i, I, and S.

(f) As best possible, interpret your result