If there is shortage of loanable funds, what is most likely to happen?
A) The supply for loanable funds shifts right and the demand shifts left.
B) The supply for loanable funds shifts left and the demand shifts right.
C) Neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.
D) Neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.

Question

Quizplus · Accepted Answer

If there is a shortage of loanable funds, it means that the demand for funds outweighs the available supply. As a result, the interest rate will rise to equilibrium in order to balance the market. This increase in interest rates will cause the quantity of loanable funds supplied to increase (as lenders will be willing to supply more at a higher interest rate), and the quantity demanded to decrease (as borrowers will be less willing to borrow at a higher interest rate). Therefore, neither the supply nor demand curve shifts, but we see an adjustment in the quantity demanded and supplied along the existing curves.

If There Is Shortage of Loanable Funds, What Is Most