L5 Concept Test Lesson 5 ConcepTest 1.The loanable funds market is a simple market of supply and demand, which can be expressed as two functions: A Supply of Loanable Funds function and a Demand of Loanable Funds function. Use the following two functions to answer questions 1-a through 1-e: QL =4+r(1) QL =40−3r(2) a.Which function represents the Supply of Loanable Funds and why?
b.Graph the two equations as the supply and demand curves on the axis provided below. Be sure to label your axis, your curves, and any X/Y-intercepts. c.What is the market equilibrium real interest rate and quantity of loanable funds? Show your work and label this point as point A. 4+r=40-3r, 4r=36, r=9/Q = 4 + 9 = 13
d.Now assume a governmental agency decides to set the interest rate at 5. Would there be a shortage or a surplus of loanable funds?
