Problem
Carefully draw and label a supply-and-demand diagram for the classical loanable funds market. Assuming that the market starts and ends in equilibrium, indicate what happens if there is a sudden drop in households' desire to consume.
a. Which curve shifts and in what direction?
b. What happens to the equilibrium amount of loanable funds borrowed and lent? (You do not need to put numbers on the graph-just indicate the direction of the change.)
c. What happens to the equilibrium interest rate?
d. What happens to the equilibrium amount of investment?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.