Step 1: The Effect of Saving on the Interest Rate The following graph shows the saving curve (S) and the investment curv

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Step 1 The Effect Of Saving On The Interest Rate The Following Graph Shows The Saving Curve S And The Investment Curv 1 (53.7 KiB) Viewed 69 times

Step 1: The Effect of Saving on the Interest Rate The following graph shows the saving curve (S) and the investment curve (I) for a small economy. Adjust the following graph to show the effect of a decrease in saving at any interest rate in this economy, which behaves according to the classical view. ? The Classical View of the Credit Market S - $ INTEREST RATE DOLLARS SAVED OR INVESTED Which of the following is an argument by the classical economists? The lower the interest rate is, the higher the reward is for saving. The higher the interest rate is, the more funds firms borrow and invest. O The lower the interest rate, the more funds firms borrow and invest. The higher the interest rate is, the lower the reward is for saving. Step 2: The Effect of Saving on Total Expenditures The following table shows data for the economy before the decrease in saving. Suppose that the decrease in saving causes consumption to rise from $350 million to $400 million. Assume Say's law holds in this economy. Fill in the data for the economy after the decrease in saving. Before Saving Decrease $350 million Consumption (C) Investment (1) Government Purchases (G) Exports (EX) Imports (IM) $100 million After Saving Decrease $400 million $ 100 million $ 200 million $200 million $800 million $800 million $700 million $700 million As a result of the decrease in saving. total expenditures will remain unchanged