Question

A recession which causes people to use their savings to pay for day to day expenses would most likely

a. increase the supply of loanable funds.
b. decrease the interest rate.
c. decrease the demand for loanable funds.
d. decrease the supply of loanable funds.
e. increase the quantity demanded of loanable funds.

Answer 1

The correct answer is D

Step-by-step explanation:

As due to recession, people will use their savings in order to pay for the day to day expenses, it will lead to decrease in the supply of loanable funds because people will not use the money in saving, which leads to decrease in loan, which people take from bank.

For example, If customer B has a savings account worth $1,000 and there are 1,000 customers, the bank will be having $1,000,000 on deposit. But if people reduce their savings, will result in decrease in amount of money which bank has on deposit.