(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
In this problem you will explore different scenarious and how changes in the supply or demand of loanable funds will affect the interest rate and quantity of loanable funds.
(Description)
On the Figure there are graphs of supply and demand of loanable funds. Horizontal axis corresponds to the quantity of loanable funds. Vertical axis corresponds to interest rate. Two straight lines (supply and demand) are plotted with supply line starting at origin and bisecting the quadrant and demand line crossing the axes at some equally distant from origin points. Lines intersect at point (Q1,r1).
(Speaker)
In this part, you were asked to analyze the effects of a decrease in government deficits, in particular, the effect on interest rates if deficits are zero. In order to finance a deficit, the government must borrow funds in the loanable funds market. If the government reduces the deficit to zero, they will no longer need to demand loanable funds, causing the demand line to shift to the left.
(Description)
On the Figure there are graphs of supply and demand of loanable funds. Two straight lines (supply and demand) are plotted with supply line starting at origin and bisecting the quadrant and demand line crossing the axes at some equally distant from origin points. Lines intersect at point (Q1,r1). The line parallel to original demand line and shifted to the left is plotted and labeled D1.
(Speaker)
This will cause interest rates to fall.
(Description)
On the Figure there are graphs of supply and demand of loanable funds. Two straight lines (supply and demand) are plotted with supply line starting at origin and bisecting the quadrant and demand line crossing the axes at some equally distant from origin points. Lines intersect at point (Q1,r1). The new point of intersection for supply and demand D1 lines is found and labeled (Q2,r2)
(Speaker)
The next part asks you to analyze the impact of an increase in consumer saving. Suppose the consumers become concerned that in the near future the economy will enter into a recession. In response to a future slow down, consumers increase saving today. By saving more money today, consumers are providing more funds to the loanable funds market. This is shown as a rightward shift in the supply line.
(Description)
On the Figure there are graphs of supply and demand of loanable funds. Two straight lines (supply and demand) are plotted with supply line starting at origin and bisecting the quadrant and demand line crossing the axes at some equally distant from origin points. Lines intersect at point (Q1,r1). The line parallel to original supply line and shifted to the right is plotted and labeled S2.
(Speaker)
As saving increases, the interest rate will decrease.
(Description)
On the Figure there are graphs of supply and demand of loanable funds. Two straight lines (supply and demand) are plotted with supply line starting at origin and bisecting the quadrant and demand line crossing the axes at some equally distant from origin points. Lines intersect at point (Q1,r1). The new point of intersection for supply S2 and original demand lines is found and labeled (Q2,r2)
(Speaker)
As saving increases, the interest rate will decrease. For the final part, you're asked to analyze the effects of an increase in investment spending. Recall that investment refers to the purchasing of physical capital. As firms increase their purchases of physical capital, they will need to borrow more funds. This is shown as an increase in the demand for loanable funds, which is a rightward shift in the demand line, causing the interest rate to increase.
(Description)
On the Figure there are graphs of supply and demand of loanable funds. Two straight lines (supply and demand) are plotted with supply line starting at origin and bisecting the quadrant and demand line crossing the axes at some equally distant from origin points. Lines intersect at point (Q1,r1). The line parallel to original demand line and shifted to the right is plotted and labeled D2. The new point of intersection for supply and demand D2 lines is found and labeled (Q2,r2)