The interest rate is the basic price that equates the demand for supply of loanable funds in the financial markets.

Question

Quizplus · Accepted Answer

This statement is true. The interest rate acts as the price that balances the demand for funds (from borrowers) and the supply of funds (from lenders) in the financial markets. As interest rates rise, borrowing becomes more expensive and demand for funds decreases. This in turn decreases the equilibrium interest rate. Conversely, as interest rates fall, borrowing becomes less expensive and demand for funds increases, leading to a higher equilibrium interest rate.

The Interest Rate Is the Basic Price That Equates the Demand