If there is surplus of loanable funds, what 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, it means there is more supply than demand. As a result, lenders will lower the interest rate to entice borrowers and the quantity of loanable funds supplied will decrease, while the quantity demanded will increase. This occurs along the fixed supply and demand curves. Therefore, the correct answer is D.

If There Is Surplus of Loanable Funds, What Is Most