If there is surplus of loanable funds, which of the following is most likely to happen?
A)The supply for loanable funds shifts right and the demand shifts left.
B)The supply for loanable funds shifts left and the demand shifts right.
C)Neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.
D)Neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.

Question

Quizplus · Accepted Answer

If there is a surplus of loanable funds, meaning that there is an excess supply of funds available for lending, then neither the supply nor demand curve will shift. However, the quantity of loanable funds supplied will decrease as lenders compete to offer lower interest rates to attract borrowers. This will result in a lower equilibrium interest rate, which in turn will encourage more borrowing and increase the quantity demanded of loanable funds. Therefore, the best choice is D.

If There Is Surplus of Loanable Funds, Which of the Following