As the prevailing interest rate increases, all of the following occur except
A) Quantity demanded of loanable funds decreases.
B) Quantity supplied of loanable funds increases.
C) Cost of borrowing rises.
D) Supply curve for savings shifts to the right.

Question

Quizplus · Accepted Answer

The statement "Supply curve for savings shifts to the right" is incorrect. As interest rates increase, consumers are incentivized to save more and borrow less. This results in a decrease in the quantity demanded of loanable funds and an increase in the quantity supplied of loanable funds, which is represented by a movement along the supply and demand curves rather than a shift in the supply curve for savings.

As the Prevailing Interest Rate Increases, All of the Following