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

Question

Quizplus · Accepted Answer

At a given interest rate, if the quantity of savings supplied is less than the quantity of investment demanded, there is a shortage of savings which will lead to an increase in the real interest rate in order to encourage more savings and discourage investment. Therefore, the correct option is D, which states that there is a shortage of savings and real interest rates will rise.

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