Refer to the figure below to answer the following questions. Figure 7.2.5 -In Figure 7.2.5, the initial supply of loanable funds curve is SLF₀and the initial demand for loanable funds curve is DLF₀.An increase in the expected profit A)shifts the supply of loanable funds curve rightward to curve SLF₁, and shifts the demand for loanable funds curve rightward to curve DLF₁. B)has no effect on either the demand for loanable funds curve or the supply of loanable funds curve. C)increases the inflation rate. D)shifts the demand for loanable funds curve rightward to curve DLF₁and does not shift the supply of loanable funds curve. E)shifts the supply of loanable funds curve rightward to curve SLF₁and does not shift the demand for loanable funds curve.

Question

Quizplus · Accepted Answer

An increase in expected profit raises the demand for loanable funds as firms are more willing to borrow for investment, shifting the demand curve rightward. It does not directly affect the supply of loanable funds.

Refer to the Figure Below to Answer the Following Questions