Question

There are two aspects of efficiency that the equilibrium of market for loanable funds exhibits. 

Select the TWO statements that characterize these two aspects of efficiency 

• Savers who lend money are willing to accept a higher minimum interest rate than potential savers who do not lend money. 

• Investment projects that are financed by savers have larger rates of return than projects that do not receive financing 

• Savers who lend money are willing to accept a lower minimum interest rate than potential savers who do not lend money. 

• All potential savers lend money. There is always a small surplus of funds in the market. 

• Investment projects that are financed have smaller rates of return than projects not receiving financing.

Answer 1

Option 2 and 3 are correct because

Explanation for Option 2

When an investment is made and the return from investment's are good then they are financed by a financial organization , because of the high returns will increase their trust and will factor in the credibility. Higher chance of repayment mainly depend upon when the return's are higher.

Explanation for Option 3

In case of market of loan-able funds, the rate of equilibrium is determined when demand is equal to supply of funds. The savers who accepts the return which is lower than the equilibrium rate will eventually lend and the savers where they want a higher return than the equilibrium rate , then these savers won't be able to lend.