Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It shifts the supply curve right, lowering interest rates.
B
It shifts the demand curve right, raising interest rates.
C
It has no effect on the loanable funds market.
D
It decreases the quantity of funds available for borrowing.
Understanding the Answer
Let's break down why this is correct
Answer
When people save more money, it means there is more money available for banks to lend out. In the loanable funds market, this increase in savings leads to a greater supply of loanable funds. When the supply of money available for loans increases, banks can offer loans at lower interest rates because they have more money to lend. For example, if many people in a community start saving more money, banks will have extra funds to offer to local businesses at lower interest rates, making it cheaper for those businesses to borrow money and invest. As a result, higher private savings can lead to lower interest rates, encouraging more borrowing and spending in the economy.
Detailed Explanation
When people save more money, there is more money available to lend. Other options are incorrect because Some might think that more savings means more demand for loans, which raises interest rates; It's a common mistake to think that savings don't affect the market at all.
Key Concepts
Impact of Savings on Interest Rates
Loanable Funds Market
Investment and Consumption
Topic
Impact of Savings on Interest Rates
Difficulty
medium level question
Cognitive Level
understand
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