AP Macroeconomics Unit 4 Part 7
First when making your graph, label the axis. Your y-axis should be labeled as interest rate. On the x-axis, it should be labeled as quantity of loanable funds. The demand for loanable funds is downward sloping, because when interest rate is lower, people demand for more money and when the interest rate is higher, people have a disincentive to borrow. The supply for loanable funds slope is upward sloping.
The supply of loanable funds come from the amount of money people have in banks, which means that it is dependent on savings. If people have incentives to save more, the supply of loanable funds increases and shifts to the right and if the incentive is to save less, the supply of loanable funds would shift to the left. When the demand for money goes up, it is best to increase the demand for loanable funds so the equilibrium will be the same. To shift the demand curve for an increase, you would move it to the right and for a decrease the curve will be shifted to the left.
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