A decrease in the expected rate of inflation will shift the demand for loanable funds curve __________, while shifting the supply of loanable funds curve __________.

Question

Quizplus · Accepted Answer

A decrease in the expected rate of inflation reduces the nominal interest rate, leading to a decrease in the demand for loanable funds (shift leftward) as borrowing becomes less attractive. Simultaneously, it increases the real return on savings, encouraging more saving and thus shifting the supply of loanable funds rightward.

A Decrease in the Expected Rate of Inflation Will Shift