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 disposable income decreases?

Question

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 disposable income decreases?

Quizplus · Accepted Answer

A decrease in disposable income leads to a decrease in savings, and therefore a decrease in the supply of loanable funds. This causes the supply of loanable funds curve to shift leftward to a new curve such as SLF₁. The economy moves to a new equilibrium point, such as point B, with a higher interest rate and lower quantity of loanable funds.

Figure 23.2.4 -In Figure 23.2.4, the Economy Is at Point a on at Point