Which of the following is true?
I. As the real interest rate increases,people increase the quantity they save.
II. The supply of loanable funds curve is downward sloping.
III. As disposable income increases,the supply of loanable funds curve becomes steeper.

Question

Quizplus · Accepted Answer

Option I is incorrect because the quantity people save is typically negatively related to real interest rates. Option II is incorrect because the supply of loanable funds curve is upward sloping -- higher interest rates motivate more saving and increase the supply of loanable funds. Option III is correct, as an increase in disposable income implies an increase in potential savings, therefore the supply of loanable funds curve becomes steeper.

Which of the Following Is True