Other things the same, a higher interest rate induces people to

Question

a. save more, so the supply of loanable funds slopes upward.
b. save less, so the supply of loanable funds slopes downward.
c. invest less, so the supply of loanable funds slopes downward.
d. invest more, so the supply of loanable funds slopes upward.

Answer 1

The correct answer is:

a. save more, so the supply of loanable funds slopes upward.

When interest rates rise, individuals are typically encouraged to save more because they can earn a higher return on their savings. As a result, the supply of loanable funds increases when the interest rate increases, leading to an upward-sloping supply curve for loanable funds.