Answer to Question #26870 in Macroeconomics for Ali

Question

please can you help in the below question:
1) In an economy operating in short-run equilibrium, suppose that households believe and know that the current and anticipated increase in government surplus for the coming 5 years will result in more social security payments in the form of after-retirement payments granted from the government to all citizens at old age. Based on this belief, many citizens started to re-think their spending and saving decisions for their future if this situation really occurred. (assuming all other variables remain constant)

a. How would this belief affect the market of Loanable Funds today? Explain your answer in words and graph?
b. Show how this effect in the market of Loanable Funds will reflect on the economy market. Explain your answer in words and graph using the AD-AS model.