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Homework answers / question archive / During an economic expansion, a) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises
During an economic expansion,
a) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises.
b) the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls.
c) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually falls.
d) the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises.
The correct option is a) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises.
Reason: When the expansion occurs in an economy, then the demand for money rises and this leads to the shift in the demand curve for loanable funds to the right.
In the economic expansion, the supply of loanable funds also increases due to the high demand and this leads to the right shift in the supply curve.
The expansion in an economy leads to an increase in the interest rates of loans as both demand and supply rises.
