Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased savings lead to a rightward shift in the supply curve of loanable funds.
B
Higher savings always result in higher interest rates.
C
Lower interest rates can stimulate higher borrowing and investment.
D
Increased savings have no effect on the overall economy.
E
A reduction in interest rates can enhance consumer spending.
Understanding the Answer
Let's break down why this is correct
Answer
When people save more money, there is more money available for banks to lend to borrowers. This increase in private savings can lead to a lower interest rate because banks have more funds to offer and may compete to attract borrowers. For example, if a lot of people deposit money into their savings accounts, banks can lower the cost of borrowing to encourage people to take out loans for things like buying a house or starting a business. As a result, more loans can be made, which can help boost the economy. Overall, increased private savings typically leads to lower interest rates and more borrowing in the loanable funds market.
Detailed Explanation
Increased savings can lower interest rates, which encourages borrowing and investment. Other options are incorrect because Some might think that more savings always means more money available to lend; It's a common belief that higher savings lead to higher interest rates.
Key Concepts
Loanable funds market
Interest rates
Economic growth
Topic
Impact of Savings on Interest Rates
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.