To estimate the real rate of interest, the economics division of Mountain Banks'a major bank holding company'has gathered the data summarized in the following table. Because there is a high likelihood that new tax legislation will be passed in the near future, current data as well as data reflecting the probable impact of passage of the legislation on the demand for funds are also included in the table. (Note: The proposed legislation will not affect the supply schedule of funds. Assume a perfect world in which inflation is expected to be zero, funds suppliers and demanders have no liquidity preference, and all outcomes are certain.)

a. Draw the supply curve and the demand curve for funds using the current data.
b. Using your graph, label and note the real rate of interest using the current data.
c. Add to the graph drawn in part a the new demand curve expected in the event that the proposed tax legislation is passed.
d. What is the new real rate of interest? Compare and analyze this finding in light of your analysis in partb.

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With passage of tax legislation Interest rate required by Amount of funds supplied/demanded (S billion) Interest rate Interest rate required by funds suppliers required by funds demanders funds demanders 2% 9% 10 100