For some reason, the expectations for future inflation increases dramatically. what effect would this have on the loanable funds market?
A. The demand for loanable funds would increase thus increasing the interest rate level.
B, The demand for loanable funds would decrease thus increasing the interest rate level.
C. The Supply for loanable funds would increase thus increasing the interest rate level.
D. The Supply for loanable funds would decrease thus decreasing the interest rate level.
Homework Answers
Answer—A—Demand for loanable funds would increase thus increasing the interest rate level
The expected inflation rate would increase the demand for loanable funds and decreases the supply of loanable funds. Here the borrowers are ready to pay a higher level of the interest rate.
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