Figure 6.6 Alt text for Figure 6.6: In figure 6.6, a graph shows loanable funds market in equilibrium.
Long description for Figure 6.6: The x-axis is labelled, quantity of loanable funds (millions of dollars), ranging from 0 to 180 in increments of 30.The y-axis is labelled real interest rate, ranging from 0 to 6% in increments of 1.2 intersecting lines are shown.A line labelled D begins at the top left corner and slopes down toward the end of the x-axis.Another line labelled S begins near the origin and slopes upward to the top right corner.5 points are plotted on these two lines as (90, 5), (90, 3), (120, 4), (150, 5), (150, 3).These points are connected to their respective coordinates on the x-axis and y-axis using dotted lines.
-Refer to Figure 6.6.The loanable funds market is in equilibrium, as shown in the figure above.An increase in the supply of loanable funds could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium?

Question

Figure 6.6  Alt text for Figure 6.6: In figure 6.6, a graph shows loanable funds market in equilibrium.
Long description for Figure 6.6: The x-axis is labelled, quantity of loanable funds (millions of dollars), ranging from 0 to 180 in increments of 30.The y-axis is labelled real interest rate, ranging from 0 to 6% in increments of 1.2 intersecting lines are shown.A line labelled D begins at the top left corner and slopes down toward the end of the x-axis.Another line labelled S begins near the origin and slopes upward to the top right corner.5 points are plotted on these two lines as (90, 5), (90, 3), (120, 4), (150, 5), (150, 3).These points are connected to their respective coordinates on the x-axis and y-axis using dotted lines.
-Refer to Figure 6.6.The loanable funds market is in equilibrium, as shown in the figure above.An increase in the supply of loanable funds could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium?

Quizplus · Accepted Answer

Based on the graph, an increase in the supply of loanable funds would shift the supply curve to the right. This would result in a decrease in the equilibrium real interest rate and an increase in the equilibrium quantity of loanable funds. Based on the options given, the only combination that fits this description is C, where the real interest rate decreases to 3% and the quantity of loanable funds increases to $150 million. The other options either have no change in the real interest rate or don't have the correct quantity of loanable funds at the new equilibrium. Option E has a lower real interest rate but a higher quantity of loanable funds, which is not possible with a rightward shift in the supply curve.

Figure 66 Alt Text for Figure 6