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

Question

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To solve this, we need to locate the intersection of the loanable funds demand and supply curves on the diagram. The equilibrium occurs where the quantity supplied equals the quantity demanded, i.e., where the two curves cross.
Option A: 8; $1.8 trillion. The 8% real interest rate is higher than the intersection point shown on the graph, and at that rate the corresponding quantity of loanable funds is not where the curves cross. Thus this is inconsistent with the equilibrium shown.
Option B: 8; $1.4 trillion. Again, 8% is not the intersection rate on the graph, and the implied quantity of $1.4 trillion does not align with the crossing point of the curves. This combination does not match the equilibrium.
Option C: 4; $1.4 trillion. A 4% rate would place us near a different point along the curves, but the crossing (where supply equals demand) is at a higher rate than 4%, and the associated quantity is not 1.4 trillion. Therefore this option misidentifies both axes values at equilibrium.
Option D: 4; $1.8 trillion. While 4% might be close to some intermediate points, the equilibrium occurs where the curves cross, which is not at 4% in this graph. The corresponding quantity would also differ from 1.8 trillion, making this option incorrect.
Option E: 6; $1.6 trillion. The intersection of the demand and supply curves in the figure occurs precisely at a real interest rate of 6% per year and a loanable funds quantity of about 1.6 trillion dollars. This matches the depicted equilibrium point where both curves meet.
In summary, only the pair that coincides with the crossing point of the two curves—6% and 1.6 trillion dollars—represents the true equilibrium in the loanable funds market on this graph.

ECON 210-003 Homework 9

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

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