If the real interest rate is below equilibrium, which of the following is likely
ID: 1101408 • Letter: I
Question
If the real interest rate is below equilibrium, which of the following is likely to occur?
Lenders will raise their interest rates which will encourage saving.
Lenders will raise their interest rates which will encourage borrowing.
Lenders will lower their interest rates which will encourage saving.
Lenders will lower their interest rates which will encourage borrowing.
(A)Lenders will raise their interest rates which will encourage saving.
(B)Lenders will raise their interest rates which will encourage borrowing.
(C)Lenders will lower their interest rates which will encourage saving.
(D)Lenders will lower their interest rates which will encourage borrowing.
Explanation / Answer
Here's the complete solution
Since interests are lower than equilibrium, the lenders will try to increase the interest (towards equilibrium)
Increasing interest rates will lead to lesser borrowing and hence more saving..
Hence the answer is: Lenders will raise their interest rates which will encourage saving.