Asked by Derek Timmer on Jun 15, 2024
Verified
If there is a surplus of loanable funds, the quantity demanded is
A) greater than the quantity supplied and the interest rate will rise.
B) greater than the quantity supplied and the interest rate will fall.
C) less than the quantity supplied and the interest rate will rise.
D) less than the quantity supplied and the interest rate will fall.
Loanable Funds
The market where savers supply funds for loans to borrowers, influencing interest rates through the forces of supply and demand.
Quantity Demanded
Refers to the total amount of a good or service that consumers are willing and able to purchase at a given price level in a given time period.
Interest Rate
The segment of a loan applied as interest for the borrower, customarily shown as an annual percentage of the current loan outstanding.
- Elucidate the mechanisms of supply and demand in the loanable funds market operating within an open economy.
Verified Answer
MT
Megha TripathiJun 16, 2024
Final Answer :
D
Explanation :
When there is a surplus of loanable funds, it means that the quantity supplied (the amount of funds available for loans) exceeds the quantity demanded (the amount of loans borrowers want to take out) at the current interest rate. This surplus puts downward pressure on the interest rate, causing it to fall until equilibrium is reached.
Learning Objectives
- Elucidate the mechanisms of supply and demand in the loanable funds market operating within an open economy.