The following figure shows credit demand and credit supply curves.

-Refer to the figure above.Assume that the loanable funds market initially is in equilibrium at point C.How is the equilibrium likely going to change if college tuition becomes free for all students?

Question

The following figure shows credit demand and credit supply curves.
 
-Refer to the figure above.Assume that the loanable funds market initially is in equilibrium at point C.How is the equilibrium likely going to change if college tuition becomes free for all students?

Quizplus · Accepted Answer

Making college tuition free for all students would increase the demand for credit, shifting the credit demand curve to the right. This would lead to an increase in the equilibrium interest rate and quantity of credit demanded, and a decrease in the quantity of credit supplied. The new equilibrium point would be to the left of the initial equilibrium point C, indicating a lower quantity of credit supplied and a higher interest rate. Therefore, the equilibrium would shift to point A.

The Following Figure Shows Credit Demand and Credit Supply Curves