The following figure plots real interest rate against quantity of credit.

-Refer to the figure above.Assume that the loanable funds market initially is in equilibrium at point D.What has to be true for the new equilibrium to be at point A?

Question

The following figure plots real interest rate against quantity of credit.
 
-Refer to the figure above.Assume that the loanable funds market initially is in equilibrium at point D.What has to be true for the new equilibrium to be at point A?

Quizplus · Accepted Answer

To shift the equilibrium from D to A, the quantity of credit demanded must increase, which can be achieved if companies or individuals decrease their savings and increase their borrowing. This can be seen in the diagram as a shift of the demand curve to the right. Alternatively, if the supply of credit were to increase, the equilibrium could also shift from D to A without a change in savings or investment. The other options (A, B, and D) are not necessary for this change in equilibrium.

The Following Figure Plots Real Interest Rate Against Quantity of Credit