An increase in people's expected future disposable income ________ saving supply, and the supply of loanable funds curve ________.

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The question asks how an increase in people's expected future disposable income affects saving supply and the supply of loanable funds.
Option 1: 'increases; shifts rightward' — This would imply savers are more willing to save when they expect to have more income in the future, which is counterintuitive. If people expect higher future income, they often borrow today and reduce current savings, so saving supply would not rise.
Option 2: 'does not change; does not shift' — The presence of a change in expected future income is a shift in behavior and typically alters saving decisions. Therefore, saying there is no change ignores a key intertemporal choice effect and is unlikely to be correct.
Option 3: 'increases; shifts leftward' — This option mixes an increase in saving with a leftward shift of the loanable funds supply curve. An increase in saving would tend to increase the supply, causing a rightward shift, not leftward, so this pairing is inconsistent.
Option 4: 'decreases; shifts leftward' — This matches the standard reasoning: when people expect higher future income, they tend to save less today (they anticipate being able to smooth consumption with higher income later), so saving supply decreases and the saving curve shifts left. The loanable funds market reflects the same underlying pool of funds; a decrease in saving translates into a leftward shift of the saving/loanable funds supply curve.
Option 5: 'decreases; shifts rightward' — This conflicts with the basic relationship between saving supply and its direction of shift. A decrease in saving should accompany a leftward (not rightward) shift in the saving supply curve, so this pairing is inconsistent.
In summary, only Option 4 aligns with intertemporal consumption/saving theory: higher expected future income reduces current saving, and the saving supply curve shifts leftward, decreasing the quantity of loanable funds supplied at any given interest rate.

ECON 210-003 Homework 9

An increase in people's expected future disposable income saving supply, and the supply of loanable funds curve .

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Consider the Loanable Funds Model: Which of the following is consistent with the graph depicted below?

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ECON 210-003 Homework 9

An increase in people's expected future disposable income ________ saving supply, and the supply of loanable funds curve ________.

View Explanation

Log in for full answers

Similar Questions

Consider the Loanable Funds Model: Which of the following is consistent with the graph depicted below?

The supply of loanable funds curve is _____ sloping because _____ respond to lower interest rates by _____ their quantity supplied of loanable funds.

A decrease in household savings due to higher consumer spending will generally cause a ___________ the ___________for loanable funds.[Fill in the blank]

A policy that induces people to save more shifts a. the supply of loanable funds and raises interest rates. b. the supply of loanable funds and reduces interest rates. c. the demand for loanable funds and raises interest rates. d. the demand for loanable funds and reduces interest rates.

The figure above shows the loanable funds market. The equilibrium real interest rate is ________, and the equilibrium quantity of loanable funds is ________.

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

An increase in people's expected future disposable income saving supply, and the supply of loanable funds curve .

The supply of loanable funds curve is ___ sloping because _ respond to lower interest rates by ___ their quantity supplied of loanable funds.

A decrease in household savings due to higher consumer spending will generally cause a _ the _for loanable funds.[Fill in the blank]

The figure above shows the loanable funds market. The equilibrium real interest rate is , and the equilibrium quantity of loanable funds is .