Suppose the Current Real Interest Rate Is 4 Percent and the Equilibrium

question 146

Multiple Choice

Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Then

• A) there is a surplus of loanable funds.
• B) prices rise and inflation occurs.
• C) there is neither a shortage nor surplus of loanable funds.
• D) there is a shortage of loanable funds.

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Definitions:

Risky Projects

Initiatives or investments that carry a high degree of uncertainty or hazard, with the potential for significant returns or losses.

Company Cash

Monetary resources that a corporation holds in its accounts, which are liquid and can be used for operational expenses, investments, or other purposes.

Mergers and Acquisitions

Business strategies involving the consolidation of companies or assets, through different types of financial transactions, including merger or takeover.

Availability Bias

The tendency to judge the likelihood of an event by the ease with which examples come to mind, which can lead to misjudgment of actual probability.