Which of the following leads to a lower real interest rate?

Choose 1 answer:
(A) The national budget moves from a deficit to a surplus.
(B) People save less.
(c) Investment demand by firms increases.
(D) Foreign savers view the market as risky.
(E) People want to borrow more money.

Question

Which of the following leads to a lower real interest rate?

Choose 1 answer:
(A) The national budget moves from a deficit to a surplus.
(B) People save less.
(c) Investment demand by firms increases.
(D) Foreign savers view the market as risky.
(E) People want to borrow more money.

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ To determine which option leads to a lower real interest rate, we need to analyze the impact of each choice on the supply and demand for loanable funds. ‖ ‖ step 2 ⋮ Option (A): If the national budget moves from a deficit to a surplus, the government is saving more, increasing the supply of loanable funds. This typically leads to a lower real interest rate. ‖ ‖ step 3 ⋮ Option (B): If people save less, the supply of loanable funds decreases, leading to a higher real interest rate. ‖ ‖ step 4 ⋮ Option (C): If investment demand by firms increases, the demand for loanable funds increases, leading to a higher real interest rate. ‖ ‖ step 5 ⋮ Option (D): If foreign savers view the market as risky, they will supply less capital, decreasing the supply of loanable funds and increasing the real interest rate. ‖ ‖ step 6 ⋮ Option (E): If people want to borrow more money, the demand for loanable funds increases, leading to a higher real interest rate. ‖ ∻Answer∻ ***A*** ∻Key Concept∻ ⚹Supply and demand for loanable funds⚹ ∻Explanation∻ ⚹An increase in the supply of loanable funds, such as when the national budget moves from a deficit to a surplus, typically leads to a lower real interest rate.⚹◊What is the probability of selecting the correct answer to the multiple choice question at random⍭ Generate me a similar question◊

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