Which statement 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 because more funds are available for borrowing. Lower interest rates can also lead to a depreciation of the real exchange rate, as domestic investments become less attractive to foreign investors, reducing the demand for the domestic currency.

Which Statement Best Predicts the Effects of an Increase in the Supply