Show the effect on the real interest rate and equilibrium quantity of loanable funds of
an increasean increase
in the demand for loanable funds and
an even larger increasean even larger increase
in the supply of loanable funds.
Draw a demand for loanable funds curve. Label it
DLF0.
Draw a supply of loanable funds curve. Label it
SLF0.
Draw a point at the equilibrium real interest rate and quantity of loanable funds. Label it 1.
Draw a curve that shows
an increasean increase
in the demand for loanable funds. Label it
DLF1.
Draw a curve that shows
an even larger increasean even larger increase
in the supply of loanable funds. Label it
SLF1.
Draw a point at the new equilibrium real interest rate and quantity of loanable funds. Label it 2.
Click to
enlarge
graph
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