Which of the following has a greater impact on the equilibrium interest rate according to the loanable funds theory? <\/p>\n\n\n\n
a. A change in supply has a greater impact. <\/p>\n\n\n\n
b. It depends on the size of the change. <\/p>\n\n\n\n
c. A change in demand has a greater impact. <\/p>\n\n\n\n
d. Supply and demand have an equal impact.<\/p>\n\n\n\n
The correct answer and explanation is:<\/strong><\/mark><\/p>\n\n\n\n Correct Answer: b. It depends on the size of the change.<\/strong><\/p>\n\n\n\n According to the loanable funds theory<\/strong>, the equilibrium interest rate is determined by the intersection of the demand for loanable funds<\/strong> and the supply of loanable funds<\/strong>. The demand primarily comes from businesses and consumers seeking loans for investment and consumption, while the supply comes from savings by households and institutions.<\/p>\n\n\n\n The question of which side\u2014demand or supply\u2014has a greater impact on the equilibrium interest rate cannot be answered in absolute terms. The effect depends on how large the shift is<\/strong> in either the demand or supply curve.<\/p>\n\n\n\n If there is a large increase in the demand for loanable funds<\/strong> (for example, due to a boom in business investments), while supply remains constant, the interest rate will increase significantly. On the other hand, if the supply of loanable funds<\/strong> increases sharply (such as during a period of high savings or capital inflows from abroad), interest rates can fall even if demand remains unchanged.<\/p>\n\n\n\n Therefore, the size and direction of the change<\/strong> in either demand or supply influence which has a greater effect. A small shift in supply might have less impact than a large shift in demand, and vice versa. For instance, during times of economic uncertainty, even a modest decrease in demand for funds can cause interest rates to drop sharply, especially if supply is relatively inelastic.<\/p>\n\n\n\n This dynamic nature makes it important to analyze both market forces together and understand the magnitude of changes on either side. Economists studying real-world markets use this approach to explain why interest rates fluctuate in response to macroeconomic events. Thus, the most accurate conclusion is that the impact on equilibrium interest rates depends on the size of the changes in supply and demand<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":" Which of the following has a greater impact on the equilibrium interest rate according to the loanable funds theory? a. A change in supply has a greater impact. b. It depends on the size of the change. c. A change in demand has a greater impact. d. Supply and demand have an equal impact. The […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-30146","post","type-post","status-publish","format-standard","hentry","category-quiz-questions"],"_links":{"self":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/30146","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/comments?post=30146"}],"version-history":[{"count":1,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/30146\/revisions"}],"predecessor-version":[{"id":30148,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/30146\/revisions\/30148"}],"wp:attachment":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/media?parent=30146"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/categories?post=30146"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/tags?post=30146"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}