During the financial crisis in 2007 and 2008, financial institutions believed that default risks were higher. As a result, there was in the supply of loanable funds and a in the real interest rate.
A) a decrease; rise
B) an increase; rise.
C) an increase; rise
D) a decrease; fall

Question

Quizplus · Accepted Answer

During a financial crisis, financial institutions become more cautious and risk-averse, leading to a decrease in the supply of loanable funds. This decrease in supply results in a rise in the real interest rate as borrowers struggle to obtain funds at higher rates.

During the Financial Crisis in 2007 and 2008, Financial Institutions