Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply

Question

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of- loanable-funds curves S1 S2 Demand Refer to Figure 26-1. What is measured along the vertical axis of the graph? a. the nominal interest rate b. the real interest rate c. the quantity of investment d. the quantity of saving 1. 2. Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2? a. In response to tax reform, firms are encouraged to invest more than they previously invested. b. In response to tax refom, households are encouraged to save more than they previously saved. c. Government goes from running a balanced budget to rming a budget deficit. d. Any of the above events would shift the supply curve from S1 to S2

Explanation / Answer

1) option b is correct - the real interest rate

2) option b is correct - In response to a tax reform, households are encouraged to invest more than they previously saved. (more supply at a given interest rate)

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