The following graph shows the market for loanable funds in a closed economy. The upward-sloping line shows the supply of loanable funds and the downward sloping line shows the demand for loanable funds.
(Saving/Investment) is the source of the demand for loanable funds. As the interest rate falls, the quantity of loanable funds demanded (decreases/increases) .
Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is (Greater/Less) than the quantity of loans demanded, resulting in a (Surplus/Shortage) of loanable funds. This would encourage lenders to (Raise/Lower) the interest rates they charge, thereby (Increasing/Decreasing) the quantity of loanable funds supplied and (Increase/Decrease) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of ______%.
as the interest rate falls, the quantity of loanable funds demanded
