Supply and demand for loanable funds
The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds.
01002003004005006006543210INTEREST RATE (Percent)LOANABLE FUNDS (Billions of dollars)Demand Supply
The Question--- (fill in the blanks).
_____ is the source of the demand for loanable funds. As the interest rate falls, the quantity of loanable funds demanded______ .
Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is_____ than the quantity of loans demanded, resulting in a_____ of loanable funds. This would encourage lenders to_____ the interest rates they charge, thereby______ the quantity of loanable funds supplied and______ the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of