As a result of the recession in 2008, the default risk increased. How did this change affect the loanable funds market?
A) There was a movement up along the supply of loanable funds curve.
B) There was a leftward shift in the supply of loanable funds curve.
C) There was a movement down along the demand for loanable funds curve.
D) There was a rightward shift in the supply of loanable funds curve.

Question

Quizplus · Accepted Answer

An increase in default risk during a recession makes lending riskier, leading to a decrease in the willingness of financial institutions to lend money. This decrease in willingness to lend is represented by a leftward shift in the supply of loanable funds curve, as lenders supply less funds at any given interest rate.

As a Result of the Recession in 2008, the Default