On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.
Refer to Figure 26-4. Regard the position of the Supply curve as fixed, as on the graph. If the real interest rate is 8 percent, the inflation rate is 3 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be
a. between D1 and D2
b. D1
c. to the right of D2
d. D2
Ans: c. to the right of D2
Real interest rate = Nominal interest rate - Inflation
8 = Nominal interest rate - 3
Nominal interest rate = 11%
Thus demand for loanable funds will to the right of D2.
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