4. Supply and demand for loanable fundsThe 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. _____(saving/investment) is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied ______(decrease/increase). Suppose the interest rate is 2.5%. Based on the previous graph, the quantity of loanable funds supplied is ______(greater/less) than the quantity of loans demanded, resulting in a ______(surplus/shortage) of loanable funds. This would encourage lenders to ______(raise/lower) the interest rates they charge, thereby ______(increasing/decreasing) the quantity of loanable funds supplied and _______(increasing/decreasing) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of ________%(how many percent). Note:- Everything written in bold handwriting is the option for the question. So please give all the correct answers to this problem. Also, the graph (in the image) is for help and tells how many percent for the last answer. The graph illustrates the market for loanable funds, depicting the relationship between interest rates and the quantity of loanable funds in billions of dollars. **Axes:**- The horizontal axis (x-axis) represents the quantity of loanable funds, ranging from 0 to 600 billion dollars.- The vertical axis (y-axis) shows the interest rate as a percentage, ranging from 0% to 6%.**Supply and Demand Curves:**- The **supply curve** is upward sloping and is depicted in orange. This suggests that as the interest rate increases, the quantity of loanable funds supplied also increases.- The **demand curve** is downward sloping, shown in blue. This indicates that as the interest rate decreases, the quantity of loanable funds demanded increases.**Equilibrium Point:**- The intersection of the supply and demand curves represents the market equilibrium. At this point, the interest rate is 3%, and the quantity of loanable funds is 300 billion dollars.- A black dashed line extends vertically from the equilibrium point to the x-axis and horizontally to the y-axis, highlighting these equilibrium values.This graph provides a visual representation of how loanable funds are influenced by changes in interest rates, reflecting the principles of supply and demand in the financial market.

Loanable funds market is an imaginary market which illustrates the market result of the demand for…

Answered: Supply and demand for loanable funds…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4. 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.

_____(saving/investment) is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied ______(decrease/increase).

Suppose the interest rate is 2.5%. Based on the previous graph, the quantity of loanable funds supplied is ______(greater/less) than the quantity of loans demanded, resulting in a ______(surplus/shortage) of loanable funds. This would encourage lenders to ______(raise/lower) the interest rates they charge, thereby ______(increasing/decreasing) the quantity of loanable funds supplied and _______(increasing/decreasing) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of ________%(how many percent).

Note:- Everything written in bold handwriting is the option for the question. So please give all the correct answers to this problem. Also, the graph (in the image) is for help and tells how many percent for the last answer.

The graph illustrates the market for loanable funds, depicting the relationship between interest rates and the quantity of loanable funds in billions of dollars.

**Axes:**

- The horizontal axis (x-axis) represents the quantity of loanable funds, ranging from 0 to 600 billion dollars.
- The vertical axis (y-axis) shows the interest rate as a percentage, ranging from 0% to 6%.

**Supply and Demand Curves:**

- The **supply curve** is upward sloping and is depicted in orange. This suggests that as the interest rate increases, the quantity of loanable funds supplied also increases.
- The **demand curve** is downward sloping, shown in blue. This indicates that as the interest rate decreases, the quantity of loanable funds demanded increases.

**Equilibrium Point:**

- The intersection of the supply and demand curves represents the market equilibrium. At this point, the interest rate is 3%, and the quantity of loanable funds is 300 billion dollars.
- A black dashed line extends vertically from the equilibrium point to the x-axis and horizontally to the y-axis, highlighting these equilibrium values.

This graph provides a visual representation of how loanable funds are influenced by changes in interest rates, reflecting the principles of supply and demand in the financial market.

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