An increase 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

An increase in the expected rate of inflation makes borrowers more willing to borrow because they expect to repay loans with cheaper dollars in the future, shifting the demand for loanable funds curve rightward. Conversely, it makes lenders less willing to lend at the current interest rate because they expect to be repaid with dollars that are worth less, shifting the supply of loanable funds curve leftward.

An Increase in the Expected Rate of Inflation Will Shift