The accompanying graph represents the market for loanable funds in the hypothetical country of Bunko. Assume the market is initially in equilibrium and inflation expectations are 2%. a. Adjust the graph to demonstrate the effects of inflation expectations increasing from 2% to 4%. b. What is the real interest rate after the change in inflation expectations? 3% 2% 7% 5% Interest rate (%) 10 9 8 7 3 2 1 0 0 2 Market for Loanable Funds D 4 6 8 10 12 14 16 Quantity of loanable funds (billions of $) 20 18 20

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