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 go up. This happens because higher interest rates make saving money more attractive for people and businesses. For example, if you have money in a savings account, a higher interest rate means you will earn more money over time, encouraging you to save rather than spend. As more people save, banks and financial institutions have more funds available to lend to others. Therefore, when interest rates rise, we usually see an increase in the total amount of money available for loans in the market.
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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