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Question
Statistics
Posted 5 months ago
Assume that Noobistan is a closed economy. As a result of increased spending on smartphone games, national savings in Noobistan has decreased.
How will the market for loanable funds be impacted, and what will the effect be on the interest rate?
Choose 1 answer:
A. The demand for loanable funds will decrease; the interest rate will not change
B The supply of loanable funds will decrease; the interest rate will increase
(c) The demand for loanable funds will increase; the interest rate will increase
(D) Both the supply and demand for loanable funds will increase; the effect on the interest rate is indeterminate
(E) The supply of loanable funds will decrease; the interest rate will not change
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Answer from Sia
Posted 5 months ago
Solution by Steps
step 1
In a closed economy, the market for loanable funds is determined by the supply and demand for loanable funds
step 2
National savings represent the supply of loanable funds. A decrease in national savings means a decrease in the supply of loanable funds
step 3
According to the law of supply and demand, a decrease in the supply of loanable funds, with demand remaining constant, will lead to an increase in the interest rate
Answer
B
Key Concept
Supply and demand in the loanable funds market
Explanation
A decrease in national savings reduces the supply of loanable funds, leading to higher interest rates if demand remains unchanged.
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