-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF₀. What happens if disposable income decreases? A) Nothing; the economy would remain at point a. B) There would be a movement to a point such as b on supply of loanable funds curve SLF₀. C) The supply of loanable funds curve would shift rightward to a curve such as SLF₂. D) The supply of loanable funds curve would shift leftward to a curve such as SLF₁.

Question

Quizplus · Accepted Answer

When disposable income decreases, households have less income available to save, leading to a decrease in the supply of loanable funds. This is represented by a leftward shift of the supply curve of loanable funds from its initial position.

-In the Above Figure, the Economy Is at Point a on the Initial