Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.

-Refer to Figure 8-3. Which of the following movements shows the effects of a new law that makes more people than before eligible for Individual Retirement Accounts?

Question

Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.
 
-Refer to Figure 8-3. Which of the following movements shows the effects of a new law that makes more people than before eligible for Individual Retirement Accounts?

Quizplus · Accepted Answer

The increase in eligibility for Individual Retirement Accounts would likely lead to an increase in saving and therefore an increase in the supply of loanable funds, causing a movement from Point C to Point F. This would lead to a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds. A movement from Point A to Point B would require a decrease in the demand for loanable funds, which is not implied by the scenario. A movement from Point B to Point F and a movement from Point C to Point B are both unlikely as they involve a decrease in the supply or increase in the demand for loanable funds, which contradicts the scenario.