The following graph shows the market for loanable funds in a closed economy. The

Question

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. Investment is the source of the demand for loanable funds. As the real interest rate falls, the quantity of loanable funds supplied Suppose the real interest rate is 6%. In this case, the quantity of loanable funds supplied is loans demanded, resulting in a of loanable funds. This would encourage lenders to the real interest rates they charge, thereby the quantity of loanable funds supplied and the quantity of loanable than the quantity of lower the real interest funds demanded, moving the market toward the equilibrium real interest rate of

Explanation / Answer

The correct answer is 5%

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