Chapter 29, Problem 6MCQ

To determine

The correct option that indicates the graph of the loanable funds market is different than that of the money market.

Answer to Problem 6MCQ

From the available options, the correct option is the supply curve slopes upward.

Explanation of Solution

The demand curve in both graphs, the loanable funds market and money market is on a downward slope. This means the demand curve would not be on an upward slope in both cases and it cannot make any difference between graphs. Moreover, in both cases, the interest rate is on the vertical axis, not the price, which means it also does not make any difference between graphs.

But when looking at the amount of the money supply, the supply curve in the money market is vertical because without considering the value of money, the Fed determines how much money is available. Whereas, the supply curve in loanable funds is upward sloping because lenders will be ready more to lend money at higher interest rates. It indicates that there is a difference between both graphs as the supply curve in the money supply market is vertical and the loanable fund’s supply curve is upward-sloping.

Therefore, the correct option is d (the supply curve slopes upward) and all other options are incorrect.

Economics Concept Introduction

Introduction: The loanable funds market provides an explanation of how savers and borrowers interact in an economy, and it is used to comprehend and analyze macroeconomic development.