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 A.The media report that a new housing bubble may warrant precaution.Holding all else constant,how might the equilibrium change?

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 A.The media report that a new housing bubble may warrant precaution.Holding all else constant,how might the equilibrium change?

Quizplus · Accepted Answer

The media report of a new housing bubble may cause potential buyers to be cautious, leading to a decrease in demand for loans and a shift of the demand curve to the left. This would result in a new equilibrium point at a lower interest rate and lower quantity of loans, represented by point B in the graph. Option A and B are incorrect as they do not take into account the potential decrease in demand due to cautionary behavior in response to the media report. Option D is also incorrect, as the supply curve is unlikely to shift based solely on the media report, without any actual changes in bank lending policies or economic conditions.

The Following Figure Shows Credit Demand and Credit Supply Curves