Question

The supply of loanable funds slopes A. downward because an increase in the interest rate induces people to invest less. B. downward because an increase in the interest rate induces people to save less. C. upward because an increase in the interest rate induces people to save more. D. upward because an increase in the interest rate induces people to invest more.

Answer 1

Answer:

A. downward because an increase in the interest rate induces people to invest less

Explanation:

Whenever the interest rate rises more on loans, people do not take more loans as the cost increases of carrying funds, which further leads to people investing less as they cannot afford to take loans for there needs, or investments, as here interest increase is referred to increase in rate of interest on loan able funds. Accordingly there will be less supply of loan funds, and the slope will go downward as the supply will decrease.

A. downward because an increase in the interest rate induces people to invest less