Question

Other things the same, when the interest rate rises,
a. people would want to lend more, making the supply of loanable funds increase.
b. people would want to lend less, making the supply of loanable funds decrease.
c. people would want to lend more, making the quantity of loanable funds supplied increase.
d. people would want to lend less, making the quantity of loanable funds supplied decrease.

Answer 1

Answer:

(A) people would want to lend more, making the supply of loanable funds increase

Explanation:

When interest rate rises, people with loanable funds are incentivized by the higher rate of interest to lend more as lending gives then a relatively better rate of return (in the form of interest rates) that earlier periods when interest rates was lower. As such, they tend to lend more, resulting in an increase in the supply of loanable funds.