Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D₁ to D₂? A) The tax code is reformed to encourage greater saving. B) The tax code is reformed to encourage greater investment. C) The government starts running a budget deficit. D) The government starts running a budget surplus.

Question

Quizplus · Accepted Answer

A shift from D1 to D2 in the demand-for-loanable-funds curve indicates an increase in demand for loanable funds. This could be caused by a reform in the tax code that encourages greater investment, as it would increase the demand for funds to finance new investments.