During the financial crisis of 2008-2009, the risk of lending and borrowing increased significantly.
a) Use the supply and demand for loanable funds model to analyze the effects of increased risk on savings, investment, and the interest rate.
b) Assume the following demand and supply of loanable funds equations: QD = 160 - 10r, and QS = -20 + 20r. How would you modify these equations to include risk?
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