Suppose the government is considering an increase in the retirement age for Australian citizens. Using the diagram for the market for loanable funds, explain how this change would affect the equilibrium real interest rate and investment. In the long run, how would this change affect real GDP in Australia?
Suppose the government is considering an increase in the retirement age for Australian citizens. Using the diagram for the market for loanable funds, explain how this change would affect the equilibrium real interest rate and investment. In the long run, how would this change affect real
Increase in retirement age implies longer earning period for every working person in Australia . This is positively impact the demand for loanable funds as the transaction demand for money will increase as the Australians will earn more in their lifetimes after this regulation .
According to liquidity preference theory -
Demand for Loanable funds = Transactional Demand + Speculative demand
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