Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 21, Problem 6P
To determine
To explain:
The changes in loanable funds supply or
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Students have asked these similar questions
list the factors that affect the demand side of the loanable funds market. which factors shift the curve?
What impact does the government have in the loanable funds market?
Forces that change the demand for investment in turn impact the demand for loanable funds. These forces include the change of government policies
Supply and demand for loanable funds
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.
01002003004005006007008009001000109876543210INTEREST RATE (Percent)LOANABLE FUNDS (Billions of dollars)Demand Supply
is the source of the demand for loanable funds. As the interest rate rises, the quantity of loanable funds demanded .
Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is than the quantity of loans demanded, resulting in a of loanable funds. This would encourage lenders to the interest rates they charge, thereby the quantity of loanable funds supplied and the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of
.
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Similar questions
- Usually, when the supply of loanable funds increases, then interest rates Select one: a. Might increase or decrease. b. Increase. c. Remain unchanged. d. Decrease.arrow_forwardThe Loanable Funds Theory suggests that the market interest rate is determined by the factors that control supply of and demand for loanable funds. Discuss the factors that affect interest rates.arrow_forwardWhen does the supply of loanable funds increase? The supply of loanable funds increases when disposable income _______ or wealth _______. A. decreases; increases B. decreases; decreases C. increases; increases D. increases; decreases Thanks!arrow_forward
- Textbook: Macroeconomics by P. Krugman & R. Wells (5th Edition) Using the accompanying diagram, explain what will happen to the market for loanable funds when there is a fall of percentage points in the expected future inflation rate. How will the change in the expected future inflation rate affect the equilibrium quantity of loanable funds?arrow_forwardWhat happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens?arrow_forwardIn the loanable funds market, if firms become more optimistic about future profitability, then the a demand for loanable funds will increase, interest rates will increase, and private sector investment spending will increase. b demand for loanable funds will decrease, interest rates will decrease, and the equilibrium quantity of borrowing will decrease. c supply of loanable funds will increase, interest rates will decrease, and the equilibrium quantity of borrowing will increase. d supply of loanable funds will increase, interest rates will increase, and private sector investment spending will increase.arrow_forward
- In detail what are some of the factors that affect demand for loanable funds according to the loanable funds theory of interest rate determination and what impact would these have on the demand and supply of funds and on the interest ratearrow_forwardProvide two examples of changes in the market for loanable funds that can result in a change in the level of interest rates. Explain how and why the interest rate changes based on the loanable fund theory.arrow_forwardExplain the loanable funds theory of interest rates.arrow_forward
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