Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Then
A) there is a surplus of loanable funds.
B) prices rise and inflation occurs.
C) there is neither a shortage nor surplus of loanable funds.
D) there is a shortage of loanable funds.

Question

Quizplus · Accepted Answer

When the current real interest rate is higher than the equilibrium real interest rate, it indicates that there is a surplus of loanable funds. This means that there is an excess supply of savings relative to the demand for investment. As a result, borrowers will be able to secure loans at lower interest rates, which will lead to more borrowing and investment. This will eventually lower the real interest rate to the equilibrium level.

Suppose the Current Real Interest Rate Is 4 Percent and the Equilibrium