at the current interest rate of 5%, national savings in florin is currently $200 million but investment…

at the current interest rate of 5%, national savings in florin is currently $200 million but investment demand is currently $100 million. which of the following best describes what will happen once the credit market clears in florin? choose 1 answer. a the real interest rate will decrease; the amount of loans made will be $100 million b the real interest rate will stay 5%; the amount of loans made will be $200 million c the real interest rate will be higher than 5%; the amount of loans made will be between $200 million and $100 million d the real interest rate will be lower than 5%; the amount of loans made will be between $100 million and $200 million e the real interest rate will increase; the amount of loans made will be $200 million

at the current interest rate of 5%, national savings in florin is currently $200 million but investment demand is currently $100 million. which of the following best describes what will happen once the credit market clears in florin? choose 1 answer. a the real interest rate will decrease; the amount of loans made will be $100 million b the real interest rate will stay 5%; the amount of loans made will be $200 million c the real interest rate will be higher than 5%; the amount of loans made will be between $200 million and $100 million d the real interest rate will be lower than 5%; the amount of loans made will be between $100 million and $200 million e the real interest rate will increase; the amount of loans made will be $200 million

Answer

Explanation:

Step1: Analyze savings - investment imbalance

At a 5% interest rate, savings ($200$ million) exceed investment demand ($100$ million). There is a surplus of loan - able funds in the credit market.

Step2: Understand market forces

When there is a surplus of loan - able funds, lenders will compete to lend money. This competition will drive down the real interest rate.

Step3: Determine equilibrium

In equilibrium, the quantity of loan - able funds supplied (savings) equals the quantity of loan - able funds demanded (investment). So, the amount of loans made will be equal to the investment demand (since savings are in excess), which is $100$ million, and the real interest rate will decrease.

Answer:

A. The real interest rate will decrease; the amount of loans made will be $100$ million