Which of the following statements is true?

Question

Quizplus · Accepted Answer

According to the loanable funds theory, an excess demand for credit (i.e. when borrowers want to borrow more than what savers are willing to lend) exerts an upward pressure on the real interest rate. This is because lenders have more bargaining power and can charge higher interest rates to borrowers. An excess supply of credit (when savers want to lend more than what borrowers are willing to borrow) leads to a decrease in interest rates as borrowers can negotiate lower rates. Therefore, statement B is true. Statements A, C, and D are incorrect.

Which of the Following Statements Is True