Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases
B
It decreases
C
It remains the same
D
It fluctuates randomly
Understanding the Answer
Let's break down why this is correct
Answer
In the loanable funds market, when there is an increase in savings, people are putting more money into banks and other financial institutions. This extra money means that there are more funds available to lend out. When the supply of loanable funds increases, it typically leads to a decrease in the equilibrium interest rate because lenders compete to attract borrowers. For example, if a bank has more savings to lend, it might lower interest rates to encourage people to take out loans. As a result, the overall cost of borrowing decreases, making it easier for individuals and businesses to get loans for things like buying homes or starting new projects.
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 higher interest rates; It’s a common mistake to think nothing changes with more savings.
Key Concepts
loanable funds
Topic
Loanable Funds Market Dynamics
Difficulty
easy level question
Cognitive Level
understand
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