AP Macroeconomics Question 4: Answer and Explanation

Test Information

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Question: 4

4. A financial planner on a popular TV show convinces more Americans to save for retirement. What is the result on the supply and demand for loanable funds?

  • A. The supply curve would shift up, increasing the equilibrium interest rate.
  • B. The demand curve would shift up, increasing the equilibrium interest rate.
  • C. The supply curve would shift down, decreasing the equilibrium interest rate.
  • D. The demand curve would shift down, decreasing the equilibrium interest rate.
  • E. Both the supply and demand curves would shift.

Correct Answer: C

Explanation:

C As there is more money available to invest, the supply curve would shift down (from S to S′ in the figure below). This would decrease the equilibrium interest rate (from i to i′). The answer is (C).