Suppose the government has a budget surplus of $50 billion more next year than this year. a) Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? b) What happens to investment, private saving, public saving, and national saving? Hint: Use diagram or equation to illustrate. c) How does the elasticity of supply of loanable funds affect the size of these changes? Hint: Use a diagram to illustrate!

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