Figure 26-4

This figure shows the loanable funds market for a closed economy.

Refer to Figure 26-4. Starting at point A, a change in tax laws that encouraged households to save more would likely cause the quantity of loanable funds traded to

Question

Figure 26-4

This figure shows the loanable funds market for a closed economy.

​

Refer to Figure 26-4. Starting at point A, a change in tax laws that encouraged households to save more would likely cause the quantity of loanable funds traded to

BlackTom AI · Accepted Answer

Increased household saving shifts the supply curve of loanable funds to the right, so the equilibrium interest rate falls and the equilibrium quantity of loanable funds rises — hence point D (160, 4%).

1) Relevant concepts
- The loanable funds market: supply = national saving, demand = investment. The interest rate is the “price” that equilibrates supply and demand.
- A policy that encourages saving increases the supply of loanable funds (a rightward shift in the supply curve).
- With demand unchanged, a rightward supply shift lowers the equilibrium interest rate and raises the equilibrium quantity.

2) Step-by-step reasoning
- Start at point A: from the figure A corresponds to quantity = $120 and interest rate = 6%.
- Tax laws that encourage saving increase saving → the supply curve shifts right (from S2 to S1 in the diagram).
- At the original interest rate (6%), the new supply exceeds demand (an excess supply of funds). Lenders compete by lowering the interest rate.
- As the interest rate falls, quantity demanded of loanable funds rises and quantity supplied falls until a new equilibrium is reached.

3) Intermediate calculation/values shown on the graph
- Initial equilibrium at A: Q = $120, r = 6%.
- New equilibrium at D: Q = $160, r = 4%. The market moves from (120, 6%) to (160, 4%).

4) Why the correct answer is correct
- A rightward supply shift with unchanged demand leads to higher quantity and lower price (interest rate). The graph’s point D exactly shows the higher quantity ($160) and lower interest rate (4%), matching this prediction.

5) Why the other options are incorrect
- “Increase to $160 and interest rate rise to 7% (point C)” contradicts the expected fall in interest after a supply increase.
- Both “decrease to $80 …” options imply supply fell (quantity and/or interest moving opposite), which is inconsistent with increased saving.

6) Conclusion
The new equilibrium is at point D: quantity increases to $160 and the interest rate falls to 4%, which matches the provided correct answer.

Figure 26-4 This figure shows the loanable funds market for a closed economy. Refer to Figure 26-4. Starting at point A, a change in tax laws that encouraged households to save more would likely cause the quantity of loanable funds traded to 单项选择题

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Figure 26-4 This figure shows the loanable funds market for a closed economy. ​ ​ Refer to Figure 26-4. Starting at point A, a change in tax laws that encouraged households to save more would likely cause the quantity of loanable funds traded to 单项选择题