Question

In the market for loanable funds, suppose the current interest rate is 5%. At a rate of 5%, investors wish to borrow $100 million and savers wish to save $125 million. We would expect: a the interest rate to fall as there is currently a surplus of loanable funds. b the interest rate to rise as there is currently a shortage of loanable funds. c the interest rate to remain the same as the loanable funds market is in equilibrium. d the interest rate to rise as there is currently a surplus of loanable funds. e the interest rate to fall as there is currently a shortage of loanable funds.

Answer 1

Answer:

The answer is a the interest rate to fall as there is currently a surplus of loanable funds.

Explanation:

Investors who wish to borrow $100 million represent quantity of money demand and savers who wish to save $125 million. There is surplus of loanable funds SS > DD = $125 million >  $100 million