Figure 32.1 represents the market for loanable funds. Which of the following is true at the equilibrium interest rate?

Question

Quizplus · Accepted Answer

At the equilibrium interest rate, the quantity of loanable funds supplied equals the quantity of loanable funds demanded. This means that the rate of return on capital for all investment projects that are being financed by these loanable funds will be equal to the interest rate. Therefore, option A is true. Option B and C are incorrect because the rate of return on capital cannot be both greater and less than the interest rate at the same time. Option D is incorrect because as explained above, there is a relationship between the rate of return on capital and the interest rate at the equilibrium point.

Figure 321 Represents the Market for Loanable Funds