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In: Economics

when there is a shortage of loanable funds, the real interest will increase. explain the previous...

when there is a shortage of loanable funds, the real interest will increase. explain the previous statement is corect pr not

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Expert Solution

Answer : The given statement is correct.

Because a shortage in loanable market occur when the quantity demanded for loans is higher than the quantity supplied for loans. As a result, a scarcity of loans occur in the loanable market. This scarcity of loans increase the interest rate. Because higher interest rate encourage firms and individuals to save more. As a result, the loanable funds will increase. So, the shortage of loanable funds increase the real interest rate. Therefore, the given statement is correct.

Rahul Sunny answered 2 years ago
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