Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Choose the correct statement.

Question

Quizplus · Accepted Answer

When the current real interest rate is higher than the equilibrium rate, there is a surplus of loanable funds, as suppliers of funds (savers) are willing to supply more funds at the higher interest rate. This surplus of loanable funds is often accompanied by a decrease in the demand for loanable funds, as borrowers are reluctant to borrow at the higher interest rate. Therefore, the correct choice is B, which states that there is a surplus of loanable funds.

Suppose the Current Real Interest Rate Is 4 Percent and the Equilibrium