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Questions
Questions

ECON 2002.01 SP2025 (25230) Final Exam

Single choice

The loanable funds market is currently in equilibrium. An increase in household savings will affect the loanable funds market in which of the following ways?

Options
A.There will be a shortage of funds and the real interest rate will decrease.
B.The supply of loanable funds will increase and the real interest rate will decrease.
C.There will be a surplus of funds and the real interest rate will increase.
D.The demand for loanable funds will increase and the real interest rate will increase.
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Standard Answer
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Approach Analysis
The question asks how the loanable funds market responds to an increase in household savings when the market is in equilibrium. Option 1: 'There will be a shortage of funds and the real interest rate will decrease.' A shortage would occur if the demand for loanable funds exceeded supply. However, an increase in savings would shift the supply curve to t......Login to view full explanation

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