Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
As interest rates rise, the quantity of funds supplied increases.
B
As interest rates rise, the quantity of funds supplied decreases.
C
Interest rates have no effect on the quantity of funds supplied.
D
The quantity of funds supplied is constant regardless of interest rates.
Understanding the Answer
Let's break down why this is correct
Answer
In the loanable funds market, there is a clear relationship between interest rates and the quantity of funds supplied. When interest rates rise, more people and institutions are willing to save money and lend it out because they can earn more from their savings. For example, if a bank offers a higher interest rate on savings accounts, more customers will deposit their money, increasing the amount of funds available for loans. Conversely, if interest rates fall, fewer people will want to save, leading to a decrease in the quantity of funds supplied. This dynamic helps balance the supply and demand for loans in the economy.
Detailed Explanation
When interest rates go up, people want to save more money. Other options are incorrect because This option suggests that higher interest rates make people save less; This option says interest rates don't affect savings.
Key Concepts
interest rates
Topic
Loanable Funds Market Dynamics
Difficulty
easy level question
Cognitive Level
understand
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