Question

The quantity of loanable funds supplied is normally

1) highly interest elastic.
2) more interest elastic than the demand for loanable funds.
3) less interest elastic than the demand for loanable funds.
4) equally interest elastic as the demand for loanable funds.
5) A and B

Answer 1

Answer:

The correct answer is option 3.

Explanation:

The quantity of loanable funds supplied is generally less interest elastic than the demand for loanable funds. This is because the interest rate affects the cost of borrowing but the cost of lending is not much affected. A higher interest rate increases the cost of borrowing so investment will become less profitable for the borrower.