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The Quantity of Loanable Funds Supplied Is Directly Related to Interest

Question 30

Multiple Choice

The quantity of loanable funds supplied is directly related to interest rates because as interest rates increase


A) the opportunity cost of household consumption increases, causing households to bring more of their after-tax income to the pool of loanable funds.
B) the opportunity cost to firms of funding projects with cash increases, causing firms to bring less of their cash to the pool of loanable funds.
C) the opportunity cost of government borrowing increases, causing government to run budget surpluses instead of deficits and therefore bring more cash to the pool of loanable funds.
D) in the United States, savers in the rest of the world will be more inclined to save in their domestic market, thereby bringing less of their saving to the US pool of loanable funds.

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