Question

Suppose that while households are deciding to increase savings, the demand by firms for investment funds falls. In the market for loanable funds, the real interest rate will _____ and the quantity of loanable funds will _____.
a) fall; rise, fall, or stay the same
b) rise, fall, or stay the same; rise
c) rise; fall
d) rise; rise

Answer 1

Answer:

Option   a) fall; rise, fall, or stay the same

Explanation:

Increase in saving increases the supply of loanable fund which increases the number of loanable funds and decreases real interest rate.

A decrease in the investment demand decreases both real interest rate and quantity of loanable funds.

the total effect is decreasing in real interest rate, but quantity loanable fund is ambiguous