An increase in inflationary expectations will cause a(n)__________ in the demand for loanable funds and a(n)__________ in the supply of loanable funds.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

When inflationary expectations increase, borrowers expect to repay loans with cheaper dollars in the future, which increases the demand for loanable funds. Conversely, lenders, anticipating that they will be repaid with dollars that are worth less, are less willing to lend, leading to a decrease in the supply of loanable funds.

An Increase in Inflationary Expectations Will Cause A(n)__________ in the Demand