Triniland is recognized as a high-income economy by the World Bank. Assume that households in Triniland decide to increase their savings for retirement. (a) Using a correctly labelled diagram of the loanable funds market, show how the increase in savings will affect the equilibrium real interest rate
As we can see from the graph above, an increase in savings will shift the supply curve for loanable funds to the right. As a result, the equilibrium quantity of loanable funds will increase and the interest rate will decrease.
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