The ____ suggests that the market interest rate is determined by factors that control the supply of and demand for loanable funds.
A) Fisher effect
B) loanable funds theory
C) real interest rate
D) none of the above

Question

Quizplus · Accepted Answer

The loanable funds theory suggests that the market interest rate is determined by the supply of and demand for loanable funds. It states that lenders supply funds and borrowers demand funds, and the equilibrium interest rate is determined at the point where the supply and demand curves intersect. The Fisher effect refers to the relationship between inflation and nominal interest rates, while the real interest rate refers to the nominal interest rate adjusted for inflation.

The ____ Suggests That the Market Interest Rate Is Determined