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) 1 2 8 7 Supply 0 0 100 200 300 400 500 Demand 600 700 800 LOANABLE FUNDS (Billions of dollars) ? is the source of the demand for loanable funds. As the interest rate falls, the quantity of loanable funds demanded Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is demanded, resulting in a than the quantity of loans of loanable funds. This would encourage lenders to the interest rates they charge, thereby the quantity of loanable funds demanded, moving the market toward the quantity of loanable funds supplied and the equilibrium interest rate of %

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