When there is excess demand in the loanable funds market, which of the following will occur?

Complete Question: If there is excess demand in the loanable funds

A. Interest rates are above equilibrium

B. Interest rates are below equilibrium

C. Interest rates expected to rise

D. A&C

E. B&C

Answer:

Interest rates are below equilibrum; Interest rates expected to rise

Explanation:

Equilibrum in a loanable funds market is very important as it keeps the amount of loan demand and funding level.

From the above question, when there is pressure on the loan funds market which is a result of increase in lenders, it is obvious that interest rates are below equilibrum to maintain the loan funds market and thus interest rates must be increased to reach that equilibrum.

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