If saving exceeds investment demand, and consumption is not a function of the interest rate:
A) the demand for loans exceeds the supply of loans.
B) the interest rate will fall.
C) the interest rate will rise.
D) saving will fall.

Question

Quizplus · Accepted Answer

When saving exceeds investment demand, there is a surplus of savings in the economy, leading to a decrease in the demand for loans. As a result, lenders lower interest rates to attract borrowers, which in turn encourages more borrowing and investment. Therefore, the interest rate will fall to balance the excess supply of savings with the reduced demand for loans.

If Saving Exceeds Investment Demand, and Consumption Is Not a Function