The following table lists some economic agents and their intentions. At present the interest rate is 5 percent.

-Refer to the table above.If there are no other people or companies in the market for loanable funds,which of the statements below must be true?

Question

The following table lists some economic agents and their intentions. At present the interest rate is 5 percent.
 
-Refer to the table above.If there are no other people or companies in the market for loanable funds,which of the statements below must be true?

Quizplus · Accepted Answer

Based on the intentions listed in the table, there is a shortage of investment in the market for loanable funds. This means there is more demand for funds than there is supply. In order to clear the market, the interest rate will need to decrease to encourage more saving and discourage borrowing, thereby increasing the supply of funds available for investment. Option A is incorrect because there is no shortage of savings listed in the table. Option C is incorrect because a shortage of savings would lead to an increase in interest rates to encourage more saving and therefore increase the supply of funds available for investment.

The Following Table Lists Some Economic Agents and Their Intentions