Question $1$: $[1$ point$]$ Suppose there is a decrease in government budget deficit in Colombia. Analyze the impact of this using the loanable funds market model. Would the narrowing budget deficit impact supply of funds or demand for funds curve? How would the equilibrium values of real interest rate and quantity of loans change in response?

Question $2$: $[1$ point$]$ Suppose there is a decline in capital inflows to Italy. Analyze the impact of this using the loanable funds market model. Would the decline impact supply of funds or demand for funds curve? How would the equilibrium values of real interest rate and quantity of loans change in response?

Question $3$: The table above shows the loanable funds supply and demand schedules. $[1$ point$]$ What is the equilibrium real interest rate and the equilibrium quantity of loanable funds?

Question $4$: Potential GDP for the economy in the picture is $\backslash (\backslash$$ $10\backslash )$ trillion dollars.

a$)[1$ point$]$ Does this country have a recessionary or an inflationary gap? b$)[1$ point$]$ How would you advise the central bank to take to fix the gap in $($a$)?$ How should they change the federal funds rate target? If the central bank listens to your advice, what kind of policy will they use to increase$/$decrease the federal funds rate?

c$)[1$ point$]$ What will be the impact of this policy action on aggregate demand and$/$or aggregate supply curves in the picture? How will the real GDP and price level respond to the policy change?