Draw the graph · Macro · Loanable funds market
A consumption boom cuts saving
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
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Demand for loanable funds stays put. Supply of loanable funds shifts left.
Saving is the supply of loanable funds. When households save less at every real interest rate, supply shifts left. Demand is unchanged. The higher interest rate moves borrowers up along their demand curve, and fewer projects get funded.
The real interest rate rises and fewer funds are borrowed.
Common mistake. Students sometimes shift demand right because 'people are borrowing to spend.' The stem says they are saving less, which shrinks supply. The higher rate is the result.
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