Why is the supply of loan able funds not perfectly inelastic? (In other words, why is the supply curve up sloping?)
What will be an ideal response?
The supply of loan able funds is not perfectly inelastic because as the interest rate increases there is an incentive for households to save more. Thus, at higher interest rates, households will supply more loan able funds and at lower interest rates, they will supply fewer loan able funds. This produces the up sloping curve for the supply of loan able funds.
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For a consumer, a budget line shows the boundary between
A) what is desired and what is not desired. B) what is needed and what is not needed. C) what is affordable and what is not affordable. D) what is available and what is not available.
Suppose an economy originally in long-run equilibrium experiences a decrease in aggregate demand. According to the classical model
A) real Gross Domestic Product (GDP) will not change but the price level will fall. B) real Gross Domestic Product (GDP) will fall, and then the price level will fall also. C) the price level will not change but real Gross Domestic Product (GDP) will fall. D) real Gross Domestic Product (GDP) will fall, wages will fall, but the prices of goods and services will stay the same.