# Macro Problem

Three students have each saved \$1000. Each has an investment opportunity in which he or she can invest up to \$2000. Here are the rates of return on the students’ investment projects:Harry RonHermione5 percent 8 percent 20 percenta. If borrowing and lending are prohibited, so each student uses only personal saving to finance his or her own investment project, how much willeach student have a year later when the project pays its return?b. Now suppose their school opens up a market for loanable funds in which students can borrow andlend among themselves at an interest rate r. What would determine whether a student would choose to be a borrower or lender in this market?c. Among these three students, what would be the quantity of loanable funds supplied and quantity of loanable funds demanded at an interest rate of 7 percent? At 10 percent? Assume unlimited funds are available to be borrowed at these interest rates.

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