When there are expectations of higher inflation in the future, we would typically expect the supply of loanable funds to ____ and the demand for loanable funds to ____.
A)increase; decrease
B)increase; increase
C)decrease; increase
D)decrease; decrease

Question

When there are expectations of higher inflation in the future, we would typically expect the supply of loanable funds to ____ and the demand for loanable funds to ____. ​
A)increase; decrease
B)increase; increase
C)decrease; increase
D)decrease; decrease

Quizplus · Accepted Answer

When expectations of higher inflation in the future arise, lenders demand higher interest rates to compensate for the decreased purchasing power of future payments, leading to a decrease in the supply of loanable funds. Borrowers, anticipating higher costs in the future, may seek to borrow more before rates rise, increasing the demand for loanable funds.

When There Are Expectations of Higher Inflation in the Future