A Graphically Illustrate How an Increase in Income Affects the Equilibrium

question 13

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.

---

Definitions:

Sales Tax

A government-imposed tax on the sale of goods and services, collected by the retailer and passed on to the government.

General Journal

A primary accounting record used to record all types of transactions before they are posted to the specific accounts in the ledger.

General Ledger

The main accounting record of a business that uses double-entry bookkeeping, which contains all the financial accounts and transactions of the company.

Subsidiary Ledgers

Detailed records that contain information about specific accounts, such as accounts receivable or payable, that support the summarized data in the general ledger.