3. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. 12 11 10 Supply INTEREST RATE (Percent) Demand 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 LOANABLE FUNDS (Billions of dollars)Investment 7 is the source of the supply.r pf loanable funds. As the interest rate falls, the quantity of loanable funds supplied decreases V . Suppose the interest rate is 5.5%. Based on the previous graph, the quantity of loanable funds supplied is greater 7 than the quantity of loans demanded, resulting in a surplus v of loanable funds. This would encourage lenders to lower v the interest rates they charge, thereh'lur decreasing v the quantity of loanable funds supplied and increasing 7 the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of