7. Problems and Applications Q7Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students’ investment projects:StudentReturn(Percent)Felix8Larry13Megan24Assume borrowing and lending is prohibited, so each student uses only personal saving to finance his or her own investment project.Complete the following table with how much each student will have a year later when the project pays its return.StudentMoney a Year Later(Dollars)Felix1,080Larry1,130Megan1,240Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate rr.If a student’s expected rate of return is less than rr, he or she would choose tolend .

Suppose the interest rate is 10 percent.Among these three students, the quantity of loanable funds supplied would be$1,000and quantity demanded would be

Now suppose the interest rate is 15 percent.Among these three students, the quantity of loanable funds supplied would be$2,000, and quantity demanded would be

Suppose the interest rate is at the equilibrium rate.Complete the following table with how much each student will have a year later after the investment projects pay their return and loans have been repaid.8. Problems and Applications Q8Suppose the government borrows $20 billion more next year than this year.

The following graph shows the market for loanable funds before the additional borrowing for next year.As a result of this policy, the equilibrium interest raterises 1.Which of the following statements accurately describes the effect of the increase in government borrowing?Check all that apply..

9. Problems and Applications Q9Investment can be increased both by reducing taxes on private saving and by reducing the government budget deficit.Reducing taxes on private spending has the effect ofincreasing the government budget deficit.What would you need to know in order to judge which of these two policies would be a more effective way to raise investment?Check all that apply.