FIGURE 15-2 -Refer to Figure 15-2.The market for financial capital is initially in equilibrium at point E₁.If the government then institutes a policy that encourages individuals to decrease the fraction of their income that they consume,

Question

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The policy encourages individuals to save more, which increases the supply of loanable funds. This leads to a lower equilibrium interest rate and an increase in the amount of investment. The equilibrium point moves to the right along the supply curve, resulting in a new equilibrium point at ES2U2B12S2U2B0.

FIGURE 15-2 -Refer to Figure 15-2.The Market for Financial Capital Is Initially