Refer to the figure below to answer the following questions.

Figure 23.2.4
-In Figure 23.2.4, the economy is at point A on the supply of loanable funds curve SLF₀. What happens if the real interest rate rises?

Question

Refer to the figure below to answer the following questions.
  
Figure 23.2.4
-In Figure 23.2.4, the economy is at point A on the supply of loanable funds curve SLF₀. What happens if the real interest rate rises?

Quizplus · Accepted Answer

If the real interest rate rises, it becomes more attractive for households to save, and the quantity of loanable funds supplied will increase. This would result in a movement up along the SLF₀ curve to a new equilibrium point such as B, where the quantity of loanable funds supplied equals the quantity of loanable funds demanded at the higher real interest rate. The supply of loanable funds curve does not shift in this scenario. Hence, the correct answer is B.

Refer to the Figure Below to Answer the Following Questions