When the interest rate rises,the demand for loanable funds falls and the supply of loanable funds rises.

Question

Quizplus · Accepted Answer

When the interest rate rises, the cost of borrowing increases which leads to a decrease in the demand for loanable funds. However, the supply of loanable funds does not necessarily rise, it may remain the same or even decrease. This is because individuals may choose to save more at higher interest rates, but businesses may decide to invest less due to the increased cost of borrowing. Therefore, the supply of loanable funds is influenced by various factors, not just the interest rate.

When the Interest Rate Rises,the Demand for Loanable Funds Falls