In the diagrams below, shift the supply or demand for loanable funds functions t

Question

In the diagrams below, shift the supply or demand for loanable funds functions to reflect the impact of the shock. Then indicate whether the real interest rate and the quantity of loanable funds rises or falls. Households became concerned about social security and decide to save more of their income. Loanable Funds The capital stock becomes more productive due to a technological innovation. Loanable Funds The federal government is trying to decide what to do with the surplus they expect to have this year. They increase spending on schools. (This question is tricky; decide which information is important and which is not.) Loanable Funds

Explanation / Answer

6. a.) When the household decides to save more ,loanable funds in the market increases which shifts supply of loanable funds to right.Interest rate decrease and loanable funds increase.

b.)Technological advancement/ efficiency in capital assets reduces cost of production and increases the return on investment.Anything that increases return on investment will increase the demand of loanable funds.Demand will shift right and interest rate will increase.

c.) Demand for loanable funds will increase and interest rate will increase.

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