Private savings and private investment spending

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Reference no: EM131424757

Use the market for loanable funds to explain what happens to 1) private savings (PS) 2) private investment spending (PI) and 3) the interest rate (r) if each of the following events occur:

Case 1: The government decides to invade and occupy a Middle Eastern nation, which causes government spending to rise.

Case 2: At any given interest rate, businesses become very optimistic about the future profitability of investment spending.

Case 3: Home prices begin declining at a rapid rate, making homeowners feel poorer. This perception causes them to spend less and save more at any interest rate than they did previously.

Case 4: The government imposes a new tax on the financial capital inflow from other nations. Because of this, the economy will have a much harder time attracting international capital.

Reference no: EM131424757

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