Question

suppose the interest rate is 4.5%. based on the previous graph, the quantity of loanable funds supplied is than the quantity of loans demanded, resulting in a of loanable funds. this would encourage lenders to the interest rates they charge, thereby the quantity of loanable funds supplied and the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of

Answer 1

A surplus of loanable funds occurs when the interest rate is higher than the equilibrium rate, prompting lenders to lower their rates to attain market equilibrium.

Step-by-step explanation:

If the interest rate is 4.5% and the quantity of loanable funds supplied is greater than the quantity demanded, this results in a surplus of loanable funds. This surplus would encourage lenders to lower the interest rates they charge. Lowering interest rates will decrease the quantity of loanable funds supplied and increase the quantity demanded, hence moving the market toward the equilibrium interest rate.

According to the information provided, at a high interest rate such as 21%, the supply of funds increases while the demand decreases, resulting in an excess supply. Lenders will subsequently reduce interest rates to attract more borrowers, thereby pushing the rates toward the equilibrium point where the market clears.

Answer 2

When the interest rate is 4.5% and there is a surplus of loanable funds, lenders will lower interest rates to increase demand, eventually moving the market toward an equilibrium interest rate where supply equals demand.

Step-by-step explanation:

If the interest rate is 4.5% and based on the previous information, we can surmise that the quantity of loanable funds supplied is greater than the quantity of loans demanded, resulting in a surplus of loanable funds. This situation encourages lenders to lower the interest rates they charge. By doing so, they increase the attractiveness of taking out loans, which in turn increases the quantity of loanable funds demanded. The adjustments in the interest rates continue until the market reaches the equilibrium interest rate, where the quantity supplied equals the quantity demanded.

For example, with an above-equilibrium interest rate of 21%, the quantity of financial capital supplied would be $750 billion, while the quantity demanded would only be $480 billion. To attract more borrowers and reduce the surplus, lenders would need to lower the interest rates or other fees. This competitive action among lenders would drive down the interest rates towards the equilibrium level, which is exemplified by a scenario where the interest rate is 15% and both the quantities supplied and demanded are at $600 billion.