The equilibrium rate of interest as determined in the loanable funds theory of interest will rise if:
A) The supply of loanable funds increases with the demand curve unchanged
B) The demand for loanable funds declines with supply unchanged
C) The supply of loanable funds is unchanged but demand increases
D) The demand for loanable funds is unchanged while the supply decreases
E) None of the above

Question

Quizplus · Accepted Answer

The equilibrium rate of interest will rise if the supply of loanable funds is unchanged but demand increases. This is because an increase in demand will shift the demand curve to the right, causing the equilibrium interest rate to rise.

The Equilibrium Rate of Interest as Determined in the Loanable