If,at a given interest rate,the quantity of savings supplied is greater than the quantity of investment demanded,what can we conclude?
A)There is a shortage of savings and real interest rates will rise.
B)There is a surplus of savings and real interest rates will rise.
C)There is a shortage of savings and real interest rates will fall.
D)There is a surplus of savings and real interest rates will fall.

Question

Quizplus · Accepted Answer

If the quantity of savings supplied is greater than the quantity of investment demanded, there is a surplus of savings and real interest rates will fall. This is because, in the market for loanable funds, lenders will compete to lend out their excess savings, which will drive down the interest rate until borrowers are willing to borrow the excess funds at the lower rate.

If,at a Given Interest Rate,the Quantity of Savings Supplied Is