During an economic recession,
A)the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises.
B)the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls.
C)the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually falls.
D)the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises.

Question

Quizplus · Accepted Answer

During an economic recession, people tend to save more and invest less, which reduces the supply of loanable funds. At the same time, the demand for loanable funds decreases as businesses and consumers become less willing to borrow due to lower confidence and decreased economic activity. This results in a simultaneous leftward shift of both the supply and demand curves for loanable funds, which leads to a lower equilibrium interest rate.

During an Economic Recession