Question

Identify the impact on either the supply or demand of loanable funds following the events listed below. 

Economic conditions deteriorate, prompting households to save a larger portion of their income. 

In an effort to balance the budget, the government decrease increases taxes paid by businesses. 

Economic conditions improve, increasing the demand for goods and services.

Innovations in robotics technology vastly improves productivity within manufacturing firms.

Answer 1

1.

Supply will increase

(as household savings are a source of supply of loans in the market)

2.

Demand will decrease

(as their incentive to produce more will fall)

3.

Demand will increase

(as demand for goods and services will increase, demand for loans to be able to afford higher consumption will increase)

4.

Demand will increase

(as firms will need more money to carry out research)