Question

Suppose that the real interest rates fell and quantity for loanable funds fell. According to the...

Suppose that the real interest rates fell and quantity for loanable funds fell. According to the market for loanable funds, which of the following could explain both of these changes?

Group of answer choices

The demand for loanable funds shifted right.

The demand for loanable funds shifted left.

The supply of loanable funds shifted right.

The supply of loanable funds shifted left.

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Homework Answers

Answer #1

Answer) At lower interest rates, firms demand additional capital and therefore extra loanable funds. Therefore loanable funds shift to the left. As demand for loanable funds shift to the left, there will be excess supply of loanable funds in the market as a result interest rate starts falling and at a lower rate of interest savers are willing to supply less money in the loanable funds market as a result quantity will also decrease.

Hence option B is the correct answer.

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