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Classical model of a closed economy

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Using the classical model of a closed economy, predict how each of the following shocks 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 loanable funds market.

a. The supply of capital (Ks) increases

b. The supply of (Ls) decreases

c. Congress cuts income taxes (T)

d. Autonomous investment (i0) increases

Reference no: EM131665704

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