When the market for loanable funds is perfect, the borrowing rate is:

Question

Quizplus · Accepted Answer

In a perfect market for loanable funds, the borrowing rate is equal to the deposit rate. This is because the supply of loanable funds (from savers/depositors) is equal to the demand for loanable funds (from borrowers) and the market clears at a mutually agreed upon interest rate, which is the deposit rate. Banks then lend out these funds at the same rate, plus a markup to cover their expenses and profits. Therefore, the borrowing rate is equal to the deposit rate in a perfect market for loanable funds.

When the Market for Loanable Funds Is Perfect, the Borrowing