In 2008, the many people became unable to make payments on their mortgages and instead defaulted on them. As a result, the _ of loanable funds curve shifts and real interest rate _ .

Question

Quizplus · Accepted Answer

When people default on their mortgages, the supply of loanable funds decreases (shifts left) because banks and other financial institutions are receiving less money from loan payments. This leads to an increase in the real interest rate, as there are now fewer funds available for lending and demand for funds remains the same or may even increase due to individuals or businesses needing loans to finance their operations. Therefore, the correct choice is B.

In 2008, the Many People Became Unable to Make Payments