A decrease in the real interest rate leads to
A) an increase in investment demand so that the demand for loanable funds curve shifts rightward.
B) an increase in the expected profit.
C) a movement downward along the demand for loanable funds curve.
D) a fall in the capital stock.

Question

Quizplus · Accepted Answer

A decrease in the real interest rate makes borrowing cheaper, leading to a movement downward along the demand for loanable funds curve as more funds are demanded at lower interest rates.

A Decrease in the Real Interest Rate Leads to