Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The supply decreases
B
The supply remains constant
C
The supply increases
D
The supply becomes negative
Understanding the Answer
Let's break down why this is correct
Answer
When interest rates increase, the supply of loanable funds tends to increase as well. This happens because higher interest rates make saving money more attractive. People and businesses are more likely to save their money in banks or other financial institutions, hoping to earn more from the interest. For example, if a person knows they can earn a better return by saving in a high-interest account, they might choose to save instead of spend. As a result, with more savings available, the overall supply of loanable funds in the market increases.
Detailed Explanation
When interest rates go up, more people want to save money. Other options are incorrect because Some might think that higher interest rates scare people away from saving; It's a common mistake to think that interest rates don't affect supply.
Key Concepts
supply of loanable funds
Topic
Loanable Funds Market Dynamics
Difficulty
easy level question
Cognitive Level
understand
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