If the income level in an economy increases, how would you categorize the resulting changes in the money market and loanable funds market? Consider the effects on money demand and interest rates.

When the income level in an economy increases, people tend to have more money to spend. This rise in income leads to an increase in the demand for money because individuals and businesses want to hold more cash for transactions and purchases. As demand for money goes up, people may start to withdraw funds from banks or seek loans, which can lead to an increase in interest rates because lenders want to earn more from the money they lend out. For example, if a community receives a big paycheck from a new job opportunity, they might all want to buy new cars, increasing the demand for loans and pushing interest rates higher. Overall, an increase in income can drive up both money demand and interest rates in the economy.