Canadians are saving more, even as the returns on their savings have dwindled, which is not what standard economic theory predicts. In the second quarter of 2016, Canada’s household savings rate was 4.2 percent, close to its average since the end of the Great Recession and more than double the average rate for the five years preceding the crisis. Yet interest rates were much lower after the recession.

a. Is the news clip talking about the quantity of loanable funds supplied or the supply of loanable funds? Explain your answer.

b. Explain why an increase in saving accompanied by a fall in interest rates is not contrary to what economic theory predicts.