← A Level Economics Revision · All Loanable funds (crowding out) questions · Home

A-Level Economics · Loanable funds (crowding out) diagram question

Government borrowing shifts demand from D₁ to D₂. Which point is the NEW equilibrium?

▶ Try it in the game first

The diagram

The answer

Point F. The supply of funds crosses D₂ at point F: the interest rate rises to r₂ and total lending rises to Q₂. Equilibrium is where the supply of funds crosses the NEW demand curve — point F. Total lending rises from 4 to 5 and the rate rises from r₁ to r₂. Point G matters too, but it answers a different question: how much of that lending is still going to private firms.

Test yourself properly

This is one of 6 questions on the loanable funds (crowding out) diagram — every corner lettered, every wrong answer diagnosed.

▶ Play the loanable funds (crowding out) game All questions & answers