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Figure: Loanable Funds Expansion

-(Figure: Loanable Funds Expansion) In the accompanying figure,if the demand for loanable funds increases from D_LFto D¹_LF and the supply of loanable funds remains at S_LF,the equilibrium interest rate will:

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Figure: Loanable Funds Expansion

-(Figure: Loanable Funds Expansion) In the accompanying figure,if the demand for loanable funds increases from D_LFto D¹_LF and the supply of loanable funds remains at S_LF,the equilibrium interest rate will:

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When the demand for loanable funds increases, the equilibrium interest rate will increase as well. In this case, the demand curve shifts to the right from D_LF to D¹_LF, causing a temporary increase in the interest rate from i₀ to i₁. Eventually, the supply curve will shift to the right to match the increased demand, and the interest rate will return to its equilibrium level of i₀.

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