Question

Assume that initially a country has a loanable funds supply curve of S1. Now, imagine that interest rates across the country increase by 3%. Click on the curve that best represents the loanable funds supply after this increase.

Answer 1

Answer:

The loanable funds supply curve (S1) will not shift.

Explanation:

When the interest rates change, it is similar to a change in the price of a good. In this case the good is money and the interest rate is its price. A change in the price of a good will result in a change of the quantity supplied along the supply curve, but it will not shift the entire curve, therefore the curve S1 remains the same.