Suppose the economy enters a recession and income falls more than the demand for loanable funds. In this case, the supply of loanable funds shifts _____ and the equilibrium interest rate _____.

Question

Quizplus · Accepted Answer

If the economy enters a recession, income falls, resulting in a decrease in the supply of loanable funds. On the other hand, if the demand for loanable funds falls less than income, the equilibrium interest rate will fall. Therefore, the supply of loanable funds shifts to the left, and the equilibrium interest rate rises.

Suppose the Economy Enters a Recession and Income Falls More