In the loanable funds market,
A) when interest rates are higher, businesses borrow more money for investment.
B) when interest rates are higher, consumers borrow more money for mortgages.
C) an increase in consumer savings causes the interest rate to rise.
D) savers are the demanders, and borrowers are the suppliers.
E) none of the above are true.

Question

Quizplus · Accepted Answer

In the loanable funds market, higher interest rates typically discourage borrowing for both businesses and consumers because the cost of borrowing is higher. An increase in consumer savings actually increases the supply of loanable funds, which tends to lower interest rates. Savers supply the funds (they are the suppliers), and borrowers demand the funds (they are the demanders), making all the given statements incorrect.

In the Loanable Funds Market