Question

If the demand for loanable funds shifts left, then A. The real interest rate and the...

If the demand for loanable funds shifts left, then

A. The real interest rate and the equilibrium quantity of loanable funds both fall

B. The real interest rate falls and the equilibrium quantity of loanable funds rises

C. The real interest rate and the equilibrium quantity of loanable funds both rise

D. The real interest rate rises and the equilibrium quantity of loanable funds falls

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Answer #1

Answer- Correct option is 'a'

If the demand for loanable funds shifts left, then the real interest rate and the equilibrium quantity of loanable funds both fall. The market for loanable funds shows the supply of saving and demand for loans. Demand for loanable fund represents the behavior of the borrowers and the quantity of loans demanded. The supply of loanable fund represents the behavior of all of the saver in an economy. If the demand for loanable funds shifts left, then the interest rate will fall and the equilibrium quantity will also fall. Figure is given below: when the demand for loanable funds shifts left from D1 to D2 , the rate of interest falls from R1 to R2 and quantity of loanable fund falls from Q1 to Q2.

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