When consumer saving and investing increase, interest rates tend to:

• A. increase due to higher demand for money
• B. fluctuate unpredictably without any relation to saving and investing
• C. decrease due to a higher supply of loanable funds
• D. remain unchanged regardless of saving and investing behavior

Answer: (C)

Verified step by step guidance

1. Understand the relationship between saving, investing, and interest rates in the loanable funds market. Saving represents the supply of loanable funds, while investing represents the demand for loanable funds.
2. Recognize that when consumers save more, the supply of loanable funds increases because more money is available to lend.
3. Note that an increase in the supply of loanable funds, holding demand constant, tends to put downward pressure on the interest rate because lenders compete to offer loans.
4. Consider that if investment demand remains constant or does not increase proportionally, the increased supply of funds will lead to a decrease in the equilibrium interest rate.
5. Conclude that higher saving and investing generally lead to a lower interest rate due to the increased supply of loanable funds, which matches the correct answer choice.