Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases demand for loans, leading to higher interest rates.
B
It decreases the supply of money, resulting in lower interest rates.
C
It increases the supply of money, leading to lower interest rates.
D
It has no effect on the demand for loans or interest rates.
Understanding the Answer
Let's break down why this is correct
Answer
When people save more money, there is more money available in banks for lending. This increase in savings means that banks have a larger supply of funds to lend to borrowers. When the supply of money available for loans goes up, banks may lower the interest rates to encourage more people to borrow. For example, if many people deposit their money into a bank, the bank might reduce the interest rate on loans to attract more customers who want to take out loans for things like buying a house or starting a business. Therefore, an increase in savings can lead to lower interest rates in the economy, making it cheaper for people to borrow money.
Detailed Explanation
When people save more money, there is more money available in banks. Other options are incorrect because Some might think that more savings means more people want loans; This option suggests that saving less money decreases the money supply.
Key Concepts
interest rates
demand for loans
supply of money
Topic
Impact of Savings on Interest Rates
Difficulty
hard level question
Cognitive Level
understand
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