Question

1. For each of the following separate scenarios, determine how the supply/demand for loanable funds in the US shifts.

1. The economy is growing and household income increases.

2. Government delays the retirement age.

3. Online shopping makes it easier for customers to consume.

4. Companies are more pessimistic during recessions.

Answer 1

1. The economy is growing and household income increases. In this case, supply and demand for loanable funds increases as the household income is increasing, the people will save more and thus they will invest more.

2. Government delays the retirement age. In this case, supply and demand for loanable funds will increase. As older people still can work for an extendable period, they'll have their employment benefits and can, therefore, demand for loans as per the need arises.

3. Online shopping makes it easier for customers to consume. In this case, supply and demand for loanable funds will increase. As customers will have a huge amount of choices, schemes and discounts, they may want to avail all of these and therefore will raise demand for the same and as a result supply for the loans will also increase.

4. Companies are more pessimistic during recessions. In this case, supply and demand for loanable funds will decrease. As the companies are afraid to invest in the fear that they may not get their money back and they are also afraid that if they borrow money from the lenders they will not be able to pay them back, therefore the supply and demand for loanable funds will decrease.