Which combination of events could have caused the equilibrium interest rate to fall and the equilibrium...
Which combination of events could have caused the equilibrium interest rate to fall and the equilibrium quantity of loanable funds (both borrowed and lent) to fall? 1)People have lower time preferences, and governments run larger deficits.
2)A baby boom begins, and people have higher time preferences.
3)Firms are more pessimistic, and governments run fewer deficits.
4)A baby boom begins, and investor confidence rises.
5)People have lower time preferences, and capital is more productive.
Homework Answers
If a situation arises in which firms are more pessimistic and government running into a deficit then equilibrium interest rate as well as quantity of loanable funds would fall.
Explanation: if firm become more pessimistic then avoid to invest in new project cause a decrease in demand for loanable funds and shift demand curve of loanable funds towards left.
And if government in running into deficit, then there will be decrease in national saving cause a decrease in supply for loanable funds and shift supply curve of loan funds tiwarto left.
If both demand and supply of loanable funds decrease and shifted to the left simultaneously, then there will be fall in equilibrium interest rate and quantity of loanable funds.
So, the correct answer is an option (3).
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