Sia
Question
Statistics
Posted 10 months ago
Which of the following best describes why the quantity of loanable funds supplied increases when the real interest rate increases?
Choose 1 answer:
(A) Household consumption increases when interest rates increase
(B) Higher interest rates encourage investment
(C) Higher interest rates lower net capital inflows
(D) Higher real interest rate encourages savings
(E) Higher interest rates increase the quantity of money supplied
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
To determine why the quantity of loanable funds supplied increases when the real interest rate increases, we need to understand the relationship between interest rates and savings behavior
step 2
Higher real interest rates provide a greater return on savings, which incentivizes individuals to save more rather than consume
step 3
An increase in savings leads to an increase in the supply of loanable funds, as savings are often deposited in financial institutions that then lend out these funds
∻Answer∻
D
Key Concept
Interest rate and savings relationship
Explanation
Higher real interest rates encourage savings, which increases the supply of loanable funds.
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