Question

When government becomes a lender in the loanable funds market:

• (i) The supply of funds increases, and the interest rate decreases.
• (ii) The supply of funds increases, and the interest rate increases.
• (iii) The supply of funds decreases, and the interest rate decreases.
• (iv) The supply of funds decreases, and the interest rate increases.

(i) and (ii) are correct.

(ii) and (iv) are correct.

only (iii) is correct.

only (i) is correct.

Answer 1

(ii) and (iv) are correct

The Interest rates would rise and saving would rise this will in turn raise the interest rate and reduces investment.