If consumers expect to have a shorter life expectancy and desire to save less,then the:
A) demand for loanable funds will increase and the equilibrium interest rate will increase.
B) demand for loanable funds will decrease and the equilibrium interest rate will decrease.
C) supply of loanable funds will decrease and the equilibrium interest rate will increase.
D) the supply of loanable funds will increase and the equilibrium interest rate will decrease.

Question

Quizplus · Accepted Answer

When consumers expect to have a shorter life expectancy and desire to save less, they will put less money into savings. This decrease in savings reduces the supply of loanable funds in the financial markets. With a lower supply of loanable funds and unchanged demand, the equilibrium interest rate will increase due to the principles of supply and demand.

If Consumers Expect to Have a Shorter Life Expectancy and Desire