The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanablefunds, and the downward-sloping blue line represents the demand for loanable funds.Supply5Demand1100200300400500600LOANABLE FUNDS (Billions of dollars)is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds suppliedSuppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied isthan the quantity of loans▼ of loanable funds. This would encourage lenders tothe interest rates they charge, therebydemanded, resulting in athe quantity of loanable funds supplied andthe quantity of loanable funds demanded, moving the market toward0%the equilibrium interest rate ofINTEREST RATE (Percent)

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Asked Jan 21, 2020
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The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable
funds, and the downward-sloping blue line represents the demand for loanable funds.
Supply
5
Demand
1
100
200
300
400
500
600
LOANABLE FUNDS (Billions of dollars)
is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied
Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is
than the quantity of loans
▼ of loanable funds. This would encourage lenders to
the interest rates they charge, thereby
demanded, resulting in a
the quantity of loanable funds supplied and
the quantity of loanable funds demanded, moving the market toward
0%
the equilibrium interest rate of
INTEREST RATE (Percent)
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The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. Supply 5 Demand 1 100 200 300 400 500 600 LOANABLE FUNDS (Billions of dollars) is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is than the quantity of loans ▼ of loanable funds. This would encourage lenders to the interest rates they charge, thereby demanded, resulting in a the quantity of loanable funds supplied and the quantity of loanable funds demanded, moving the market toward 0% the equilibrium interest rate of INTEREST RATE (Percent)

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Expert Answer

Step 1

The market for Loanable Funds defines how the borrowing and lending activities take place in the market. Savings are the source of supply (S) of Loanable funds (LF) in the market and borrowings make the demand side of LF.

There is a direct rela...

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Supply and Demand

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