In 2008, the many people became unable to make payments on their mortgages and instead defaulted on them. As a result, the ________ of loanable funds curve shifts ________ and real interest rate ________.
A) supply; leftward; increases
B) demand; leftward; increases.
C) supply; rightward; falls.
D) demand; rightward; decreases.

Question

Quizplus · Accepted Answer

When many people default on their mortgages, banks and financial institutions have less capital to lend out, which decreases the supply of loanable funds. This shift in the supply curve to the left leads to an increase in the real interest rate.

In 2008, the Many People Became Unable to Make Payments