If the real interest rate is below the equilibrium real interest rate
A) lenders will be unable to find borrowers willing to borrow all of the available funds and the supply of loanable funds curve will shift leftward.
B) borrowers will be unable to borrow all of the funds they want to borrow and the demand for loanable funds curve will shift rightward.
C) a shortage of loanable funds will cause the real interest rate to rise.
D) borrowers will be unable to borrow all of the funds they want to borrow and the demand for loanable funds curve will shift leftward.

Question

Quizplus · Accepted Answer

When the real interest rate is below the equilibrium rate, it means that the price of borrowing is relatively low, leading to a higher demand for loans than what is available. This discrepancy creates a shortage of loanable funds, which puts upward pressure on the real interest rate, causing it to rise towards equilibrium.

If the Real Interest Rate Is Below the Equilibrium Real