Which of the following will increase the supply of loanable funds in a market?

• A. A rise in government budget deficits
• B. An increase in household savings rates
• C. A decrease in the interest rate paid on deposits
• D. A reduction in foreign investment inflows

Answer: (B)

Verified step by step guidance

1. Understand that the supply of loanable funds in a market comes primarily from savings by households, firms, and the government sector. It represents the total amount of funds available for borrowing.
2. Analyze each option to see how it affects the total savings or funds available for lending: For example, an increase in household savings rates means more funds are saved and thus more funds are supplied to the loanable funds market.
3. Consider the effect of a rise in government budget deficits: This typically means the government is borrowing more, which can reduce the supply of loanable funds available to others, as government borrowing competes for funds.
4. Evaluate the impact of a decrease in the interest rate paid on deposits: Lower interest rates may discourage savings, reducing the supply of loanable funds.
5. Assess the effect of a reduction in foreign investment inflows: Less foreign investment means fewer funds entering the market, which decreases the supply of loanable funds.