Answer to Question #229668 in Macroeconomics for Uyu

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.

A.

only (i) is correct.

B.

(i) and (ii) are correct.

C.

only

(iii) is correct.

D.

(ii) and (iv) are correct.

Answer 1

Option A is the correct answer: only (i) is correct.

The supply of funds increases, and the interest rate decreases.