Question

In the loanable funds market, savers supply funds for loans to borrowers. Because this market is crucial to the economy, it is important that you understand what factors cause the demand for and supply of loanable funds to change. Match four of the five factors listed on the right with the appropriate diagram on the left. One factor does not match

Answer 1

A) When stock prices are increased wealth is increased which implies that consumption is higher and savings are reduced. This shifts the supply curve leftwards

B) When people are less patient they supply more funds (to save for near future) and hence supply curve shifts right

C) Higher productivity means increased production and so firms demand more funds. Demand curve shifts right

E) Business pessimism implies demand for funds decreases