-In the above figure, the initial supply of loanable funds curve is SLF₀and the initial demand for loanable funds curve is DLF₀. An economic expansion that raises disposable income and the expected profit would A) only shift the supply of loanable funds curve rightward to a curve such as SLF₁. B) have no effect on either the demand for loanable funds curve or the supply of loanable funds curve. C) shift the supply of loanable funds curve rightward to a curve such as SLF₁, and shift the demand for loanable funds curve rightward to a curve such as DLF₁. D) only shift the demand for loanable funds curve rightward to a curve such as DLF₁.

Question

Quizplus · Accepted Answer

An economic expansion increases disposable income, leading to more savings and thus a rightward shift in the supply of loanable funds. It also raises expected profits, increasing the demand for loans, shifting the demand curve rightward.

-In the Above Figure, the Initial Supply of Loanable Funds