3. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. Supply Demand 100 200 300 400 500 600 700 800 900 1000 1100 1200 LOANABLE FUNDS (Bons of dollars) is the source of the supply of loanable funds. As the interest rate rises, the quantity of loanable funds supplied than the quantity of loans the interest rates they charge, the quantity of loanable funds demanded, moving the market Suppose the interest rate is 5.5%. Based on the previous graph, the quantity of loanable funds supplied is demanded, resulting in a of loanable funds. This would encourage lenders to thereby the quantity of loanable funds supplied and toward the equilibrium interest rate of %

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