Question

The source of the supply of loanable funds is
a.
saving, and the source of the demand for loanable funds is investment.
b.
consumption, and the source of the demand for loanable funds is investment.
c.
investment, and the source of the demand for loanable funds is saving.
d.
the interest rate, and the source of the demand for loanable funds is saving.

Answer 1

The correct answer is A. When people save money, banks can loan those funds. This is the same as supplying loanable funds. When investors invest money, they demand loanable funds. That is, an investment is the purchase of loanable funds.