Real interest rate (percent per year) SLF1 b SLFO SLF2 Loanable funds (trillions of 2009 dollars) In the above figure, the economy is at point a on the initial supply of loanable funds curve SLFO. What happens if the real interest rate rises? O Nothing; the economy would remain at point a. O There would be a movement to a point such as b on supply of loanable funds curve SLFO- O The supply of loanable funds curve would shift rightward to a curve such as SLF 2. O The supply of loanable funds curve would shift leftward to a curve such as SLF1.

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Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.