If the equilibrium interest rate in the market is estimated to be 6%,which of the following is likely to occur if rates increase to 7%?
A) The supply of funds shifts to the right.
B) The total supply of lending shifts to the right.
C) The quantity of funds supplied is greater than the quantity of funds demanded.
D) The quantity of funds demanded is greater than the quantity of funds supplied.

Question

Quizplus · Accepted Answer

When interest rates increase, it becomes more attractive for savers to deposit their money, leading to an increase in the quantity of funds supplied. At the higher interest rate, fewer borrowers are willing to take out loans, resulting in a situation where the quantity of funds supplied exceeds the quantity of funds demanded.

If the Equilibrium Interest Rate in the Market Is Estimated