(Exhibit: Saving, Investment, and the Interest Rate 1) 
Reference: Ref 3-1 
(Exhibit: Saving, Investment, and the Interest Rate 1) The economy begins in equilibrium at
Point E1, representing the real interest rate, r1 , at which saving, S , equals desired
Investment, I1 . What will be the new equilibrium combination of real interest rate, saving, and
Investment if the government cuts spending, holding other factors constant?
Definitions:
Gift Inter Vivos
A legal term for a gift given during the lifetime of the giver, transferring ownership immediately.
Legal Ownership
The lawful possession of property, characterized by rights such as transfer, use, and exclusion, recognized and enforced by legal systems.
Legal Ownership
The formal and legally recognized possession of property, rights, or interests, backed by law.
True Value
Represents the actual, inherent worth of an asset, free from market fluctuations or perceptions.
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