If at a given real interest rate desired national saving is $120 billion, domestic investment is $84 billion, and net capital outflow is $56 billion, then at that real interest rate in the loanable funds market there is a
A)surplus.The real interest rate will fall.
B)shortage.The real interest rate will fall.
C)shortage.The real interest rate will rise.
D)surplus.The real interest rate will rise.

Question

Quizplus · Accepted Answer

The loanable funds market is in equilibrium when the quantity of loanable funds supplied (saving and net capital inflow) equals the quantity of loanable funds demanded (investment and net capital outflow). In this case, the quantity of loanable funds supplied is $120 billion + $56 billion = $176 billion, and the quantity of loanable funds demanded is $84 billion + $56 billion = $140 billion. Therefore, there is a shortage of loanable funds of $176 billion - $140 billion = $36 billion. This shortage will cause the real interest rate to rise.

If at a Given Real Interest Rate Desired National Saving