Draw a graph to illustrate the effect of an increase in the demand for loanable funds and an even larger increase in the supply of loanable funds on the real interest rate and the equilibrium quantity of loanable funds.
Added by Annette G.
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The loanable funds market is where savers supply funds for borrowers. The demand for loanable funds comes from borrowers, while the supply comes from savers. The real interest rate is the price of borrowing funds, and the equilibrium quantity is where the supply Show more…
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Draw a graph to illustrate how an increase in the supply of loanable funds and a decrease in the demand for loanable funds can lower the real interest rate and leave the equilibrium quantity of loanable funds unchanged.
3. Draw and label a graph showing equilibrium in the market for loanable funds. Explain why the demand for loanable funds slopes downward and the supply of loanable funds slopes upward. Using the graph previously created (representing the market for loanable funds), show and explain what happens to interest rates and investment if a government goes from a deficit to a surplus.
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