Refer to the figure below to answer the following questions. Figure 7.2.5 -In Figure 7.2.5, the supply of loanable funds curve is SLF₀and the demand for loanable funds curve is DLF₀.An expansion that increases disposable income and expected profit A)increases the inflation rate. B)has no effect on either the demand for loanable funds curve or the supply of loanable funds curve. C)shifts the supply of loanable funds curve rightward to curve SLF₁, and shifts the demand for loanable funds curve rightward to curve DLF₁. D)shifts the demand for loanable funds curve rightward to curve DLF₁and does not shift the supply of loanable funds curve. E)shifts the supply of loanable funds curve rightward to curve SLF₁and does not shift the demand for loanable funds curve.

Question

Quizplus · Accepted Answer

An expansion that increases disposable income and expected profit will lead to an increase in savings and investment, which will shift the supply of loanable funds curve rightward to SLF₁. At the same time, the increase in expected profit will lead to an increase in investment demand, which will shift the demand for loanable funds curve rightward to DLF₁. Therefore, both the supply of loanable funds curve and the demand for loanable funds curve will shift rightward.

Refer to the Figure Below to Answer the Following Questions