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, the equilibrium interest rate is determined by the supply and demand for funds. When there is an increase in savings, it means that more money is available to be lent out. This increase in the supply of loanable funds usually leads to a decrease in the interest rate because lenders will compete to attract borrowers by offering lower rates. For example, if a bank sees that more people are saving money, it may lower its interest rates to encourage more loans. As a result, the increased savings can lead to a lower equilibrium interest rate in the market.
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 may seem like the interest rate stays the same, but more savings actually changes the supply of money.
Key Concepts
loanable funds
Topic
Loanable Funds Market Dynamics
Difficulty
easy level question
Cognitive Level
understand
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