A Graphically Illustrate How an Increase in Income Affects the Equilibrium

Essay

a. Graphically illustrate how an increase in income affects the equilibrium levels of saving, investment, and the interest rate in the loanable funds model. Be sure to label:
i. the axes
ii. the curves
iii. the initial equilibrinm values
iv. the direction the curve shifts
v. the terminal equilibrium values.

b. Explain in words what happens to the equilibrium levels of saving, investment, and the interest rates as a result of the increase in income.