Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases the supply of loanable funds, lowering interest rates.
B
It decreases the demand for loanable funds, raising interest rates.
C
It has no effect on the supply of loanable funds or interest rates.
D
It leads to a decrease in savings, causing interest rates to rise.
Understanding the Answer
Let's break down why this is correct
Answer
When private savings increase, it means that people are setting aside more money instead of spending it right away. This extra money often goes into banks, which can then lend it out to others. In the loanable funds market, this increase in savings leads to a greater supply of money available for loans. As a result, banks may lower interest rates because they have more funds to lend, making borrowing cheaper. For example, if a family saves more money for a down payment on a house, they can take advantage of lower interest rates when they decide to get a mortgage.
Detailed Explanation
When people save more money, there is more money available for banks to lend. Other options are incorrect because This answer suggests that saving less leads to higher borrowing costs; This answer says savings do not change anything.
Key Concepts
Loanable funds market
Interest rates
Private savings
Topic
Impact of Savings on Interest Rates
Difficulty
easy level question
Cognitive Level
understand
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