Question

Assume that currently banks pay 2% interest on money that customers deposit in savings accounts. As the overall amount of money held in savings accounts increases, in financial markets Group of answer choices both supply and demand are increasing. the supply of savings decreases. the demand for savings increases. the supply of savings increases.

Answer 1

Answer:

The supply of savings increases.

Explanation:

We know that the supply of loanable funds is dependent upon the amount of deposits in the savings account. Supply curve of loanable funds represents the direct relationship between the quantity supplied and the interest rate. It is a upward sloping curve which indicates that an increase in the interest rate will lead to increase the quantity supply of loanable funds.

There is a change in the supply of loanable funds if there is any change in the savings behavior of the customers. If the savings of the customers increases then as a result the supply of savings also increases.