If savers decide to save more, ceteris paribus, the loanable funds theory predicts:
A)A reduction in investment and interest rates
B)An increase in investment and interest rates
C)Higher economic growth
D)A reduction in interest rates and more investment

Question

Quizplus · Accepted Answer

When savers decide to save more, the supply of loanable funds increases. According to the loanable funds theory, this leads to a reduction in interest rates because there is more money available for borrowing. Lower interest rates make borrowing cheaper, encouraging more investment.

If Savers Decide to Save More, Ceteris Paribus, the Loanable