Assume that the government has run out of retirement funds, and people need to rely on...

Assume that the government has run out of retirement funds, and people need to rely on themselves for retirement. In the loanable funds market, which curve shifts to which direction?

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Expert Solution

Assume that the government has run out of retirement funds, and people need to rely on themselves for retirement. In the loanable funds market, which curve shifts to which direction?

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The market for loanable funds consists of two main curves:

Supply of loanable funds - which comes from national savings
Demand for loanable funds - which comes from borrowing, comprising mainly of consumers and firms

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When the government runs out of retirement funds, it means that the supply of loanable funds will be affected. Now, people will need to withdraw money from their own past savings.

In total, the Supply of loanable funds will decrease. This is due to a reduction in both public and private savings.

The Supply curve will shift to the left, raising the interest rate and lowering the overall quantity of loanable funds available. This will make borrowing costlier.

Rahul Sunny answered 2 months ago

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