Answer:
When the interest rate falls below the equilibrium, excess DEMAND, or a shortage of funds, occurs in the market. Credit card firms will believe that there is AN OPPORTUNITY TO RAISE interest rates because of the anticipated demand.
Explanation:
Interest rates are basically the price of money. If we consider the market for money, total loanable funds represent the supply of money and the consumers of money are everyone that needs funds to either invest in some project or purchase something on credit.
If the price of a produce or service decreases, the quantity demanded will will increase while the quantity supplied will decrease. This will result in a shortage of products, goods, or in this case funds. As the supply decreases, the equilibrium price will shift until it reaches a new level.
Banks usually react very fast to any change in interest rates and the demand/supply of money, so when they anticipate a surge in credits, they will immediately raise interest rates to earn higher profits.
