Refer to the figure below to answer the following questions.
Figure 7.2.3
-In Figure 7.2.3, the real interest rate is 6 percent a year and the economy is on curve DLF.The expected profit falls.With no change in the real interest rate, the new quantity of loanable funds demanded is
A)zero.
B)between $450 billion and $600 billion.
C)greater than $600 billion.
D)less than $450 billion.
E)$450 billion.

Question

Refer to the figure below to answer the following questions.
  Figure 7.2.3
-In Figure 7.2.3, the real interest rate is 6 percent a year and the economy is on curve DLF.The expected profit falls.With no change in the real interest rate, the new quantity of loanable funds demanded is
A)zero. 
B)between $450 billion and $600 billion. 
C)greater than $600 billion. 
D)less than $450 billion. 
E)$450 billion.

Quizplus · Accepted Answer

According to the graph, when expected profit falls, the demand for loanable funds decreases and therefore the quantity demanded shifts leftward. Since there is no change in the real interest rate, the quantity supplied remains the same. As a result, the new equilibrium point is where the quantity demanded intersects with the quantity supplied, which is less than $450 billion. Therefore, the answer is D.

Refer to the Figure Below to Answer the Following Questions