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Suppose that the loanable funds market in an economy is initially described by the following equations where i is the interest rate and Q is the quantity of loanable funds measured in millions of dollars:
Demand for loanable funds: i = 8 - 0.8Q
Supply of loanable funds: i = 2 + 0.8Q
Furthermore assume that this economy's government is currently running a balanced budget.
a. Given the above information, calculate the equilibrium quantity of loanable funds and the equilibrium price in this market. Show your work.
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