Figure 10.7 -Refer to Figure 10.7.A movement from point C to point A could be caused by A) a negative demand shock. B) a decrease in the term premium investors expect in the future. C) a decrease in the default-risk premium. D) a decrease in the expected rate of inflation.

Question

Quizplus · Accepted Answer

A movement from point C to point A represents a decrease in both the equilibrium real interest rate and the equilibrium quantity of funds loaned and borrowed. This could be caused by a negative demand shock, which reduces investment demand and therefore the equilibrium interest rate. The other options listed (B, C, and D) would each shift the demand curve for loanable funds, but would not necessarily cause a movement from point C to point A specifically.

Figure 10.7 -Refer to Figure 10.7.A Movement from Point C to Point