If there is a surplus of loanable funds, then
A)neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.
B)the supply for loanable funds shifts right and the demand shifts left.
C)the supply for loanable funds shifts left and the demand shifts right.
D)neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.

Question

Quizplus · Accepted Answer

When there is a surplus of loanable funds, it means that at the current interest rate, the quantity of loanable funds supplied exceeds the quantity demanded. This surplus puts downward pressure on the interest rate, leading to a decrease in the interest rate until equilibrium is reached. As the interest rate falls, the quantity of loanable funds supplied decreases and the quantity demanded increases, restoring equilibrium without either the supply or demand curve needing to shift.

If There Is a Surplus of Loanable Funds, Then