MINDTAP Q search t omework Ch 13 4 Supply and demand for loa

MINDTAP Q search t omework (Ch 13) 4 Supply and demand for loanable funds The following graph shows the market for loanable funds in a dosed economy. The funds, and the downward-sloping blue ine represents the demand for loanable funds spward-sloping orange line represents the supply of loanable 6 8

Solution

Business investment is the source of the demand for the loanable fund. As the interest falls the quantity of loanable funds demanded increases

Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable fund supplied is more than the quantity of loans demanded. Resulting in a surplus of loanable funds. This would encourage lenders to decrease the interest rate they charge. Thereby decrease the quantity of loanable funds supplied and increase the quantity of loanable funds demanded, moving the market towards the equilibrium interest rate of 4%.