Which of the following best predicts the effects of an increase in the supply of loanable funds?
A)The interest rate and the real exchange rate both increase.
B)The interest rate and the real exchange rate both decrease.
C)The interest rate increases, and the real exchange rate decreases.
D)The interest rate decreases, and the real exchange rate increases.

Question

Quizplus · Accepted Answer

An increase in the supply of loanable funds typically leads to a decrease in interest rates due to the higher availability of funds. Lower interest rates can lead to a decrease in the real exchange rate as capital flows out to seek higher returns elsewhere.

Which of the Following Best Predicts the Effects of an Increase