If the real interest rate is above the equilibrium real interest rate
A) lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall.
B) borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will rise.
C) lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will rise.
D) borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will fall.

Question

Quizplus · Accepted Answer

When the real interest rate is above the equilibrium level, it means the cost of borrowing is higher than what many borrowers are willing to pay. As a result, there will be excess supply of loanable funds since lenders cannot find enough borrowers. This excess supply puts downward pressure on the real interest rate, causing it to fall towards equilibrium.

If the Real Interest Rate Is Above the Equilibrium Real