Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Then
A) prices rise and inflation occurs.
B) there is a surplus of loanable funds.
C) there is a shortage of loanable funds.
D) there is neither a shortage nor surplus of loanable funds.

Question

Quizplus · Accepted Answer

When the current real interest rate is higher than the equilibrium real interest rate, it means the cost of borrowing is higher than what would be in equilibrium, leading to less borrowing and more saving. This results in a surplus of loanable funds as supply exceeds demand.

Suppose the Current Real Interest Rate Is 4 Percent and the Equilibrium