9. In the market for loanable funds, suppose the current interest rate is 5%. At

Question

9. In the market for loanable funds, suppose the current interest rate is 5%. At a rate of 5%,
investors wish to borrow $100 million and savers wish to save $125 million. We would
expect:
A) the interest rate to fall as there is currently a shortage of loanable funds.
B) the interest rate to rise as there is currently a surplus of loanable funds.
C) the interest rate to rise as there is currently a shortage of loanable funds.
D) the interest rate to fall as there is currently a surplus of loanable funds.

10. Suppose the lender expects a real interest rate of 6% and the inflation rate is expected to be
3%. In this case, the nominal interest rate is equal to:
A) 3%.
B) 9%.
C) 12%.
D) 6%.

Explanation / Answer

B) the interest rate to rise as there is currently a surplus of loanable funds. A) 3%.

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