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. REAL INTEREST RATE (Percent) 8 7 6 5 4 3 2 1 0 Supply Demand 100 200 300 400 500 600 700 800 LOANABLE FUNDS (Billions of dollars) Saving is the source of the supply of loanable funds. As the real interest rate rises, the quantity of loanable funds demanded decreases Suppose the real interest rate is 7%. In this case, the quantity of loanable funds supplied is greater than the quantity c

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Chapter1: Making Economics Decisions
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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
REAL INTEREST RATE (Percent)
8
7
6
5
4
3
2
1
0
Supply
is the source of the supply of loanable funds.
Demand
100 200 300 400 500 600 700 800
LOANABLE FUNDS (Billions of dollars)
As the real interest rate rises, the quantity of loanable funds demanded decreases
Suppose the real interest rate is 7%. In this case, the quantity of loanable funds supplied is greater than the quantity of
loans demanded, resulting in a surplus of loanable funds. This would encourage lenders to lower the real interest
rates they charge, thereby
the quantity of loanable funds supplied and increasing the quantity of loanable
funds demanded, moving the market toward the equilibrium real interest rate of 7%
increasing
Transcribed Image Text: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 REAL INTEREST RATE (Percent) 8 7 6 5 4 3 2 1 0 Supply is the source of the supply of loanable funds. Demand 100 200 300 400 500 600 700 800 LOANABLE FUNDS (Billions of dollars) As the real interest rate rises, the quantity of loanable funds demanded decreases Suppose the real interest rate is 7%. In this case, the quantity of loanable funds supplied is greater than the quantity of loans demanded, resulting in a surplus of loanable funds. This would encourage lenders to lower the real interest rates they charge, thereby the quantity of loanable funds supplied and increasing the quantity of loanable funds demanded, moving the market toward the equilibrium real interest rate of 7% increasing
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