If the quantity of loanable funds supplied is greater than the quantity demanded, which statement best describes the difference?
A) There is a deficit of loanable funds and the excess is net capital outflow.
B) There is a deficit of loanable funds and the shortage is net capital outflow.
C) There is a surplus of loanable funds and the excess is net capital outflow.
D) There is a surplus of loanable funds, and the shortage is net capital outflow.

Question

Quizplus · Accepted Answer

A surplus of loanable funds means that demand for borrowing is lower than the supply of available funds. This results in a decrease in the interest rate, which in turn spurs an increase in net capital outflow, as investors are incentivized to seek higher returns in foreign markets. Therefore, the excess supply of loanable funds leads to an increase in net capital outflow.

If the Quantity of Loanable Funds Supplied Is Greater Than