Chapter 5R, Problem 23MCQ

To determine

The correct option that defines the reason for shifting the supply curve for loanable funds toward the right.

Answer to Problem 23MCQ

Option a is correct.

Explanation of Solution

Explanation for the correct option:

a.

The supply curve of loanable funds will shift towards the right if interest rates increases, which is as shown below:

  

Therefore, option a is correct.

Explanation for incorrect options:

b.

If the government budget deficit increases, then there will shortage of money in the whole market as a result money supply will decrease. Therefore, option b is incorrect.

c.

If there is a decrease in saving rates, then people will spend more and supply will decline. Therefore, option c is incorrect.

d.

If expected inflation is increased, then demand for money will also increase. This increase in demand for money will result in a decrease in supply. Therefore, option d is incorrect.

e.

Capital inflows from abroad result in lending from abroad that decreases the requirement for loanable funds. The supply curve will shift towards the left. Therefore, option e is incorrect.

Economics Concept Introduction

Money supply curve: The money supply curve refers to the curve that depicts the relationship between money supplied and the interest rate that prevails in the market.