Answer to Question #153767 in Macroeconomics for jason

Question

Assume that Proton and Perodua will be working together through research and development in a joint project to produce an all-electric-vehicle for the Malaysians market. Suppose the project include building a new assembly plant based in Malaysia. Show on a graph the effect of Proton or Perodua going to the loanable funds market to finance the new assembly plant. Explain the effect on the real interest rate, private saving, and investment

Answer 1

Suppose that the amount of money supply does not change, but the demand for money increases - the (M / P) D1 curve shifts upward to the right to (M / P) D2. As a result, the equilibrium interest rate will rise from R1 to R2

If the interest rate is higher than the equilibrium rate (r *), then there are more savings than investments