Use the market fro loanable funds shown in the accompanying diagram to explain what happens to private savings, private investment spending, and the rate of interest if the following events occur. Assume the economy is closed.
a. The government reduces the size of its deficit to zero.
b. At any given interest rate, consumers decide to save more. Assume the budget balance is zero.
c. A any given interest rate, business become very optimistic about the future profitability of investment spending. Assume the budget balance is zero.