Question

Which combination of events could have caused the equilibrium interest rate to fall and the equilibrium quantity of loanable funds (both borrowed and lent) to rise
a. A baby boom begins, investor confidence rises.

b. People have lower time preferences, and the governments run larger deficits.

c. A baby boom begins, and investor confidence falls.

d. A baby boom begins, and people have higher time preferences.

e.People have lower time preferences, and capital is more productive.

Answer 1

Answer:

The correct option is A: A baby boom begins, investor confidence rises.

Explanation:

The main combination of factors that would cause equilibrium interest rate to fall and equilibrium quantity of loanable funds to rise is when there are many more individuals in their middle age than there are older people, and an increase in  wealth. The presence of many middle aged individual would likely indicate the beginning of a baby boom and wealth increase in an economy shows confidence in investors.