If analysts expect that the demand for loanable funds will decrease, and the supply of loanable funds will increase, they would most likely expect interest rates to ____ and prices of existing bonds to ____.

Question

Quizplus · Accepted Answer

If the demand for loanable funds decreases and the supply of loanable funds increases, there will be a surplus of loanable funds. This surplus will lead to a decrease in interest rates due to increased competition among lenders. Lower interest rates will make existing bonds less attractive, causing their prices to fall. Therefore, analysts would most likely expect interest rates to decrease (choice D) and prices of existing bonds to decrease.

If Analysts Expect That the Demand for Loanable Funds Will