Question

If the demand for loanable funds shifts to the left, what will happen to the equilibrium interest rate and the equilibrium quantity of loanable funds?

both increases.
both falls.
the equilibrium interest rate rises and the equilibrium quantity of loanable funds falls.
the equilibrium interest rate falls and the equilibrium quantity of loanable funds rises.

Answer 1

The correct answer is option b.

Step-by-step explanation:

The interest rate in the loanable funds market is determined by the intersection of demand for funds and the supply of funds.

If there is a leftward shift in the demand curve. It means the demand for loanable funds is decreasing.

This would consequently lead to a decline in the interest rate and the quantity of loanable funds.