Market interest rates are determined A) by banks. B) by the New York Stock Exchange (NYSE). C) only by the demand for loanable funds. D) only by the supply of loanable funds. E) by both the demand for and supply of loanable funds.
Added by Dawn M.
Close
Step 1
Step 1: Market interest rates are determined by banks and the supply of loanable funds. Show more…
Show all steps
Your feedback will help us improve your experience
Haricharan Gupta and 70 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
The market rate is the rate used to calculate the actual cash payments made to bondholders.
Haricharan G.
The source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied increases. Suppose the interest rate is 3.59. Based on the previous graph, the quantity of loanable funds supplied is greater than the quantity of loans demanded, resulting in an excess supply of loanable funds. This would encourage lenders to lower the interest rates they charge, thereby increasing the quantity of loanable funds supplied and decreasing the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate.
Lottie A.
Banks do not earn interest on the funds they hold as reserves. How does this provide an incentive to banks to create money by making loans rather than to deposit excess funds in a Fed bank?
The Federal Reserve and Monetary Policy
Functions of the Federal Reserve
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD