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. INTEREST RATE (Percent) 2 1 10 9 Supply 0 0 100 Demand 200 300 400 500 600 700 800 900 1000 LOANABLE FUNDS (Billions of dollars) ? Investment is the source of the demand for loanable funds. As the interest rate rises, the quantity of loanable funds demanded decreases Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is demanded, resulting in a shortage of loanable funds. This would encourage lenders to raise the interest rates they charge, thereby the quantity of loanable funds supplied and the equilibrium interest rate of % less than the quantity of loans the quantity of loanable funds demanded, moving the market toward
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. INTEREST RATE (Percent) 2 1 10 9 Supply 0 0 100 Demand 200 300 400 500 600 700 800 900 1000 LOANABLE FUNDS (Billions of dollars) ? Investment is the source of the demand for loanable funds. As the interest rate rises, the quantity of loanable funds demanded decreases Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is demanded, resulting in a shortage of loanable funds. This would encourage lenders to raise the interest rates they charge, thereby the quantity of loanable funds supplied and the equilibrium interest rate of % less than the quantity of loans the quantity of loanable funds demanded, moving the market toward
Chapter21: Financial Markets, Saving, And Investment
Section: Chapter Questions
Problem 6P
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