Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.
-Refer to Figure 13-4. Regard the position of the Supply curve as fixed, as on the graph. If the real interest rate is 8 percent, the inflation rate is 3 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

Question

Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.

-Refer to Figure 13-4. Regard the position of the Supply curve as fixed, as on the graph. If the real interest rate is 8 percent, the inflation rate is 3 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate minus the inflation rate. If the real interest rate is 8 percent and the inflation rate is 3 percent, the nominal interest rate is 11 percent. The demand-for-loanable-funds curve must be at a position where the nominal interest rate is 11 percent, which corresponds to D₂ if the market is in equilibrium.