A policy that induces people to save more shifts
A)the supply of loanable funds rightward and increases investment.
B)the supply of loanable funds leftward and decreases investment.
C)the supply of loanable funds rightward and decreases investment.
D)the supply of loanable funds leftward and increases investment.

Question

Quizplus · Accepted Answer

When people save more, the supply of loanable funds increases. This is because these savings are available for investment, and hence the funds available for borrowing (loanable funds) increase. As a result, the demand for investment also increases leading to an increase in investment. Hence, when people save more, the supply of loanable funds shifts rightward and increases investment.

A Policy That Induces People to Save More Shifts