If there is a shortage of loanable funds, then a. the quantity of loanable funds
ID: 2429445 • Letter: I
Question
If there is a shortage of loanable funds, then
a. the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest
rate is above equilibrium.
b. the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest
rate is below equilibrium.
c. the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest
rate is above equilibrium.
d. the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest
rate is below equilibrium.
Explanation / Answer
Correct option is (b).
If interest rate is less than the equilibrium interest rate, quantity of loanable funds demanded increases but quantity of loanable funds supplied decreases, creating a shortage equal to (Quantity demanded - Quantity supplied).