Final answer:
The ECB can alter interest rates through expansionary or contractionary monetary policy.
Step-by-step explanation:
The European Central Bank (ECB) has the power to alter interest rates as part of its monetary policy. When the ECB wants to stimulate the economy, it can lower interest rates through expansionary monetary policy.
This is done by increasing the supply of loanable funds, which shifts the supply curve to the right. As a result, the equilibrium interest rate decreases and the quantity of loaned funds increases.
Conversely, if the ECB wants to slow down economic growth and control inflation, it can raise interest rates through contractionary monetary policy.
This is done by decreasing the supply of loanable funds, which shifts the supply curve to the left. As a result, the equilibrium interest rate increases and the quantity of loaned funds decreases.