Question

Which of the following events would shift the demand curve of loanable funds to the right?

Select one:

a. Local firms plan to increase their purchases of new equipment and construction of new factories.

b. A change in the tax laws encourages people to consume less and save more.

c. The government goes from running a budget deficit to running a budget surplus.

d. A change in the tax laws encourages people to consume more and save less.

Answer 1

Ans: Local firms plan to increase their purchases of new equipment and construction of new factories.

Explanation:

Any factor other than interest rate leads to a shift in the demand for loanable fund curve.

The following factors that cause the demand curve for loanable funds to shift:

• Changes in perceived business opportunities
• Changes in government spending, etc.

When Local firms plan to increase their purchases of new equipment and construction of new factories, it means there is more demand for loanable fund at prevailing interest rate. Thus leads to a rightward shift in the demand for loanable fund curve.

Thus, option [a] is the correct answer.