Using the loanable funds theory, show in a graph how each of the following events affects the supply and demand for loans and the equilibrium real interest rate:
a. A war leads the government to increase spending on the military. (Assume taxes do not change.)
b. Wars in other countries lead to higher government spending in those countries.
c. Someone invents a new kind of computer that makes firms more productive. Many firms want to buy the computer. Higher productivity also increases people’s confidence in the economy, so consumers see less need to save.
d. The same things happen as in part (c). In addition, increased confidence in the economy raises net capital inflows.