The demand for loanable funds curve is
A) vertical at the full employment level of investment.
B) constant at the maximum expected profit rate.
C) downward sloping when plotted against the real interest rate.
D) upward sloping when plotted against the real interest rate.

Question

Quizplus · Accepted Answer

The demand for loanable funds is the amount of funds borrowers (such as investors and businesses) are willing to borrow at each given interest rate. As interest rates increase, the cost of borrowing increases and thus the demand for loanable funds decreases. Therefore, the demand for loanable funds curve is downward sloping when plotted against the real interest rate.

The Demand for Loanable Funds Curve Is