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

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

When the real interest rate rises, people would likely save more and borrow less, leading to a decrease in the demand for loanable funds. This would create a surplus of loanable funds, causing the interest rate to fall. As a result, the economy would move along the supply of loanable funds curve to a new equilibrium point such as B. Thus, the correct answer is B, as there is a movement to a new point on the same supply of loanable funds curve.

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