An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Question

Quizplus · Accepted Answer

An increase in the demand for loanable funds, all else being equal, leads to an increase in the equilibrium interest rate because lenders require a higher return to part with their money. As the interest rate rises, it becomes more attractive for people to save, leading to an increase in the equilibrium level of saving.

An Increase in the Demand for Loanable Funds Increases the Equilibrium