Please help me with this question I\'m not sure if I have the correct answers..

Question

Please help me with this question

I'm not sure if I have the correct answers..

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 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 of loans demanded, resulting In a surplus of loanable funds. This would encourage lenders to lower the real interest rates they charge, thereby Increasing 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%

Explanation / Answer

(a) Saving is the source of supply (correct).

(b) A real interest rate rises, quantity of loanable funds demanded decreases (correct).

(c) When real interest rate is 7%, quantity of loanable funds supplied is greater than quantity of loanable funds demanded, resulting in a surplus (correct).

(d) This would encourage lenders to lower the real interest rate (correct), thereby decreasing** the quantity of loanable funds and increasing the quantity of loanable funds demanded (correct), moving market toward equilibrium interest rate of 5%**.

** (1) When real interest rate is lower, lenders will receive lower return against their funds and so, they will decrease the quantity of loanable funds supplied, not increase it

**(2) Equilibrium interest rate is at intersection of demand and suppl curves, at 5%

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.