Suppose that there is an increase in disposable income and simultaneously an increase in the profitability of investment.As a result, the equilibrium real interest rate ________ and the equilibrium quantity of loanable funds ________.

Question

Quizplus · Accepted Answer

An increase in disposable income increases savings, shifting the supply of loanable funds to the right, while an increase in investment profitability increases the demand for loanable funds, shifting the demand curve to the right. The equilibrium quantity of loanable funds increases, but the effect on the real interest rate is indeterminate as it depends on the relative magnitudes of the shifts in supply and demand.

Suppose That There Is an Increase in Disposable Income and Simultaneously