Question

If the supply of loanable funds shifts to the right, then the equilibrium interest ratea. and quantity of loanable funds risesb. and quantity of loanable funds fallsc. rises and quantity of loanable funds fallsd. falls and quantity of loanable funds rises

Answer 1

Answer:

Option (d) is correct.

Explanation:

When the supply of loanable funds increases and this change in loanable funds shifts the supply curve of loanable funds rightwards then as a result the equilibrium interest falls and the quantity of loanable funds increases.

In this situation, the supply of loanable funds exceeds the demand for loanable funds, so the financial institutions would provide funds at a lower interest rate to the borrowers.

Fall in the interest rate would induce borrowers to take loan at a cheaper rate.