Chapter 5R, Problem 25MCQ

To determine

The correct option that defines the slope for the supply curve of loanable funds.

Answer to Problem 25MCQ

Option a is correct.

Explanation of Solution

Explanation for the correct option:

a.

The supply curve of loanable funds slopes upward because of the increase in interest rates and increase in the quantity supplied as well. It is shown as follows:

  

Therefore, option a is correct.

Explanation for incorrect options:

b.

A vertical supply curve means there is no change in the quantity supplied even if the interest rate is increased or decreased. Therefore, option b is incorrect.

c.

A horizontal supply curve means that the quantity supplied increases even when there is no change in interest rate. Therefore, option c is incorrect.

d.

A downward-sloping curve is usually a curve that represents for demand loanable funds. Therefore, option d is incorrect.

e.

The supply curve for loanable funds is an upward-sloping rather U-shaped curve. Therefore, option e is incorrect.

Economics Concept Introduction

The supply curve of loanable funds: It refers to the relationship between the quantities of loanable funds supplied with respect to the interest rate.