Other things equal, an increase in the Z factors ________ the equilibrium interest rate and ________ equilibrium output.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question

Quizplus · Accepted Answer

The Z factors refer to the factors that shift the demand for loanable funds curve. An increase in the Z factors (such as optimism about future economic growth or increased government borrowing) would increase the demand for loanable funds and shift the demand curve to the right. This leads to a higher equilibrium interest rate and a lower equilibrium output level. Therefore, the correct answer is B.

Other Things Equal, an Increase in the Z Factors ________