If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, then
A) people will save more
B) the real interest rate will fall
C) the real interest rate will rise
D) firms will decrease their investment demand

Question

Quizplus · Accepted Answer

When the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, there is an excess supply of funds in the market. This leads to increased competition among borrowers for funds, and lenders can afford to lower the interest rate to attract borrowers. As a result, the real interest rate will fall, leading to increased investment and consumption, which will bring the market back into balance.

If the Quantity of Loanable Funds Supplied Exceeds the Quantity