Figure 26-2.The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves.
r Q
-Refer to Figure 26-2.Which of the following events would shift the demand curve from D1 to D2?

Question

Figure 26-2.The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves.
r  Q
-Refer to Figure 26-2.Which of the following events would shift the demand curve from D1 to D2?

Quizplus · Accepted Answer

When firms become optimistic about the future and plan to increase their purchases of new equipment and construction of new factories, they will need to borrow more money to finance these investments. This will shift the demand curve for loanable funds to the right from D1 to D2. A government budget surplus (choice A) would decrease the demand for loanable funds by reducing the government's borrowing needs. A change in tax laws that encourages people to save more (choice C) would also increase the supply of loanable funds but not necessarily shift the demand curve. A change in tax laws that encourages people to save less (choice D) would decrease the supply of loanable funds but not necessarily shift the demand curve.