13. The Financial System
Shifts in the Market for Loanable Funds
Multiple Choice
The scientists at University of Coloralabaska have discovered an insanely efficient teleportation device useful that revolutionized the shipping and delivery industry. How would this invention affect the market for loanable funds?
A
Demand for loanable funds would increase, leading to a higher equilibrium interest rate
B
Demand for loanable funds would increase, leading to a lower equilibrium interest rate
C
Demand for loanable funds would decrease, leading to a higher equilibrium interest rate
D
Demand for loanable funds would decrease, leading to a lower equilibrium interest rate
Verified step by step guidance1
Identify the key economic change: The invention of a teleportation device revolutionizes the shipping and delivery industry, likely leading to increased business opportunities and investments.
Understand the relationship between investment and the demand for loanable funds: When businesses expect higher returns from new technologies, they are more likely to invest, increasing the demand for loanable funds.
Analyze the effect on the demand curve: An increase in demand for loanable funds shifts the demand curve to the right.
Consider the impact on equilibrium interest rates: With a higher demand for loanable funds, the equilibrium interest rate is likely to rise as borrowers compete for available funds.
Evaluate the options: Based on the analysis, determine which option correctly describes the effect on the market for loanable funds, focusing on changes in demand and interest rates.
