Researchers predict that the demography of the next 15 years will cause big chan

Question

Researchers predict that the demography of the next 15 years will cause big changes in the loanable funds market. First, a large cohort is set to retire and will, as a result, deplete their savings. Secondly, as the workforce shrinks, firms will scramble to borrow money in order to buy machines and robots. These two movements will together cause interest rates to: Researchers predict that the demography of the next 15 years will cause big changes in the loanable funds market. First, a large cohort is set to retire and will, as a result, deplete their savings. Secondly, as the workforce shrinks, firms will scramble to borrow money in order to buy machines and robots. These two movements will together cause interest rates to:

Explanation / Answer

Ans. That's a good question. Let's start answering this :

As stated in the question , If Savings of people would start depleting , then people's deposits in the banks would start diminishing. If people would borrow more and more money from the banks to buy Machine and Robots, the Money Supply in the Economy would Increase , this would lead to HIGH INFLATION .

Thus , in order to induce more and more people to deposit money in the banks and to restrict the amount of loans given to the people , Interest Rates would INCREASE.

By increasing the interest rates , bank would induce people to save and deposit more , and also restrict the loans given to the people , to prevent INFLATIONARY PRESSURE ON THE ECONOMY.

I hope you understood the answer. Do ask in case of any doubts.

Best of Luck !! Keep Chegging !!

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