The following graph shows the market for loanable funds in a closed economy.

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.

_______ 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 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 _______ .

Solutions

Expert Solution

__ is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied falls.

Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is more than the quantity of loans demanded, resulting in a surplus supply of loanable funds. This would encourage lenders to decrease the interest rates they charge, thereby decreasing the quantity of loanable funds supplied and increase the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of 3%.

Rahul Sunny answered 1 year ago

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