if investment spending dramatically rises in the US, how does this affect the credit market, (borrowers, savers, and lenders)?

Question

Without notice, investment spending dramatically rises in the United States.

a) Using a correctly drawn AD/AS graph, explain the short-run impact of this sudden increase in investment spending on each of the following for the United States.

Output

Price Level

b) Explain how the resultant change represented by the AD/AS graph will affect the credit market (borrowers, savers, and lenders). Are they helped or hurt? 

Answer 1

It will shift the investment curve, and then the IS curve to the right. Given the LM curve, both real GDP and real interest rate will increase.