Refer to the figure below to answer the following questions.

Figure 23.2.5
-Refer to Figure 23.2.5. In Figure 23.2.5, the supply of loanable funds curve is SLF₀ and the demand for loanable funds curve is DLF₀. An expansion that increases disposable income and expected profit

Question

Refer to the figure below to answer the following questions.
  
Figure 23.2.5
-Refer to Figure 23.2.5. In Figure 23.2.5, the supply of loanable funds curve is SLF₀ and the demand for loanable funds curve is DLF₀. An expansion that increases disposable income and expected profit

Quizplus · Accepted Answer

An expansion would increase disposable income and expected profit, leading to an increase in demand for loanable funds, shifting the DLF₀ curve rightward to curve DLF₁. At the same time, individuals would save more due to higher income, leading to an increase in the supply of loanable funds, shifting the SLF₀ curve rightward to SLF₁. Therefore, both curves shift rightward, resulting in a higher equilibrium quantity and interest rate. Option A is incorrect because an expansion would not only increase the supply of loanable funds but also increase the demand for them. Option C is incorrect because it would not lead to an increase in the inflation rate. Option D is incorrect because an expansion would affect both curves.

Refer to the Figure Below to Answer the Following Questions