If there is an excess supply of loanable funds at a given interest rate:
A) bond prices will increase.
B) bond prices will decrease.
C) the interest rate will rise.
D) bond prices may rise or fall, depending on the cause for excess funds.

Question

Quizplus · Accepted Answer

When there is an excess supply of loanable funds, it means there is more money available to lend than there is demand for borrowing. This typically leads to a decrease in interest rates, which in turn causes bond prices to increase, as bond prices and interest rates are inversely related.

If There Is an Excess Supply of Loanable Funds at a Given