If banks become more willing to make loans, the aggregate demand curve will
A)shift to the left, and the real interest rate will fall.
B)shift to the left, and the real interest rate will rise.
C)shift to the right, and the real interest rate will fall.
D)shift to the right, and the real interest rate will rise.

Question

Quizplus · Accepted Answer

An increase in banks' willingness to make loans will increase the supply of loanable funds, shifting the supply curve to the right. This will lead to a decrease in the equilibrium real interest rate and an increase in investment spending, which will in turn shift the aggregate demand curve to the right.

If Banks Become More Willing to Make Loans, the Aggregate