Answer to Question #229046 in Macroeconomics for Priest

Question

Suppose there is an excess demand of loanable funds. Which of the following adjustments will occur to 

restore equilibrium in that market? 

 

(i) The real interest rate will decrease.

(ii) The quantity of loanable funds demanded will rise.

(iii) The real interest rate will increase.

(iv) The quantity of loanable funds supplied will fall.

A. Only (iii) is correct.

B. Only (i) and (iv) are correct.

C. Only (ii) and (iii) are correct.

D. Only (iii) and (iv) are correct.

Answer 1

D. Only (iii) and (iv) are correct.

When the demand is excess this means that the quantity supply will be less than the normal flow, meaning the quantity supplied will fall. This will may make the rate of interest to increase considering the increase in demand.