Question

1. Suppose the government restricts foreign lenders from lending money in the US loanable funds market. What happens to the equilibrium interest rate in the US?

2. Suppose credit card companies encourages households to spend more. What happens to the equilibrium quantity of loans in the loanable funds market?

Answer 1

Answer:

1. When foreign lenders are stopped from lending money, the supply curve of money in loanable funds market shifts to the left, indicating a decrease in the supply of money. This will meet the downward sloping demand curve at a point that will show a higher interest rate. Thus, the equilibrium interest rate will increase.

2. When credit card companies encourage households to spend more, the demand for loananle funds increases. This increased demand will shift the demand curve to the right, indicating an increase in the quantity demanded. Thus, the quantity of loans in the loananle funds market increases.