Final answer:
A smaller shift in money demand compared to the initial shift in money supply will not completely counter the effects of the initial supply shift, leading to an equilibrium with a higher supply of loanable funds and a lower interest rate. Inelastic demand leads to greater price changes with supply shifts, whereas inelastic supply results in larger price changes when demand shifts.
Step-by-step explanation:
When discussing the effects on equilibrium in the context of money supply and demand, we're looking at the market for loanable funds. If the shift in money demand is smaller than the initial shift in money supply, the new equilibrium will not offset the effects of the initial money supply shift completely. Assuming an initial expansionary monetary policy, which increases the supply of loanable funds and reduces the interest rate, a less significant increase in money demand would partially absorb the additional funds but not enough to return interest rates to their original level. The result would be a new equilibrium with a higher supply of loanable funds and a lower interest rate than initially, though not as low as it would be without the increase in money demand.
In the cases of inelastic demand and supply, when demand is inelastic, shifts in supply will have a larger effect on equilibrium price than on quantity. Conversely, when supply is inelastic, shifts in demand will tend to result in larger changes in equilibrium price compared to quantity changes. Lastly, if demand is elastic, shifts in supply are more likely to impact the equilibrium quantity than the price.