A decrease in the interest rate due to an increase in the supply of loanable funds is referred to as the __________ effect.

Question

Quizplus · Accepted Answer

The decrease in interest rates due to an increase in the supply of loanable funds is referred to as the liquidity effect. This is because an increase in the supply of loanable funds makes borrowing more liquid and accessible, pushing interest rates down.

A Decrease in the Interest Rate Due to an Increase