Chapter 6R, Problem 2FRQ

a.

To determine

To draw: The labeled graph on which the equilibrium interest rate and equilibrium quantity of loanable funds can be represented.

Explanation of Solution

Calculation:

Graph showing equilibrium interest rate and equilibrium quantity of loanable funds which is as follows:

  

Graph 1

Economics Concept Introduction

Loan-able funds market: Loan-able funds markets represent the place where the behavior of savers and borrowers can be predicted.

b.

To determine

To show: The effect of increased government deficit in the loan-able fund market with the label of new equilibrium interest rate and quantity of loan-able funds.

Explanation of Solution

Graph showing effect of increased government deficit in loan able fund market which is as follows:

  

Graph 2

Therefore, an increased government deficit will shift the demand curve towards the right.

Economics Concept Introduction

Loan-able funds market: Loan-able funds markets represent the place where the behavior of savers and borrowers can be predicted.