The equilibrium in the market for loanable funds is:
A) at the interest rate set by the Fed.
B) at the price at which the quantity supplied is slightly greater than quantity demanded.
C) where the amount being borrowed and the amount being saved is the same.
D) where the amount being saved is enough for banks to cover required reserves.

Question

Quizplus · Accepted Answer

The equilibrium in the market for loanable funds is where the amount being borrowed and the amount being saved is the same. This is because the demand for loanable funds comes from borrowers who want to invest, and the supply of loanable funds comes from lenders who want to save. If the demand for loanable funds is greater than the supply, the interest rate will increase to encourage more savings and decrease borrowing, until the equilibrium where demand and supply are equal is reached. Similarly, if the supply is greater than the demand, the interest rate will decrease to encourage more borrowing and decrease savings, until the equilibrium is reached.

The Equilibrium in the Market for Loanable Funds Is