If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, then
A)the supply of loanable funds increases.
B)people will save more.
C)the real interest rate will fall.
D)the real interest rate will rise.
E)the demand for loanable funds increases.

Question

Quizplus · Accepted Answer

When there is an excess supply of loanable funds, meaning there is more money available to lend than there are borrowers interested in borrowing, this will put downward pressure on the interest rate. This is because lenders will compete to attract borrowers by offering lower interest rates, which will decrease the real interest rate. Therefore, the correct answer is C: the real interest rate will fall.

If the Quantity of Loanable Funds Supplied Exceeds the Quantity