Consider the four macromodels of the economy discussed in class: Goods and Services, Labor, Loanable Funds and Foreign Exchange. Demonstrate your understand for how these macromodels are related to one another when answering the following questions.
1. Assume that the goods and services market is at potential, but then a significant decrease in aggregate demand occurs. How does this decrease in aggregate demand affect the market for goods and services, and what's the likely impact on the labor market?
2. Assume that the loanable funds market is at equilibrium, and that the (current) quantity of loanable funds being supplied is equal to the amount of domestic savings. There is suddenly a significant increase in the demand for loanable funds. How does this increase in the demand for loanable funds affect the market for loanable funds, and what is the likely impact on the market for foreign exchange?