Asked by Ahmed Aldughaither on Jun 18, 2024
Verified
Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?
A) An increase in the supply of or a decrease in the demand for loanable funds
B) An increase in the supply of or an increase in the demand for loanable funds
C) A decrease in the supply of or a decrease in the demand for loanable funds
D) A decrease in the supply of or an increase in the demand for loanable funds
Loanable Funds Market
The hypothetical market that illustrates the interaction between borrowers who demand loanable funds and lenders who supply loanable funds, determining the equilibrium real interest rate.
Surplus
Surplus is the situation in which the quantity supplied of a product or service exceeds the quantity demanded, often leading to lower prices.
Equilibrium Interest Rate
The interest rate at which the supply of savings meets the demand for investment funds in a market, leading to an economic balance.
- Examine the reasons behind and the consequences of movements in the supply and demand curves for loanable funds.
Verified Answer
SJ
Stacy JonesJun 20, 2024
Final Answer :
A
Explanation :
An increase in the supply of loanable funds or a decrease in the demand for loanable funds would lead to a surplus at the original equilibrium interest rate because there would be more funds available than are demanded at that rate.
Learning Objectives
- Examine the reasons behind and the consequences of movements in the supply and demand curves for loanable funds.