Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.
-Refer to Figure 26-3.Which of the following movements shows the effects of households' decision to save more?

Question

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3.Which of the following movements shows the effects of households' decision to save more?

Quizplus · Accepted Answer

A household decision to save more would increase the supply of loanable funds, causing the supply curve to shift to the right from S1 to S2. This movement causes the equilibrium interest rate to decrease from i1 to i2, and the quantity of loanable funds exchanged to increase from q1 to q2. Point C represents the initial equilibrium, and Point F represents a higher interest rate and lower quantity of loanable funds, so it can be eliminated as an option. Points A and B represent higher interest rates and lower quantities of loanable funds, so these movements do not represent an increase in household saving.