When the real interest rate rises
A) there is an upward movement along the demand for loanable funds curve.
B) the demand for loanable funds curve shifts rightward.
C) the demand for loanable funds curve shifts leftward.
D) there is a downward movement along the demand for loanable funds curve.

Question

Quizplus · Accepted Answer

When the real interest rate rises, it becomes more expensive for individuals and businesses to borrow money. This leads to a decrease in the quantity of loanable funds demanded, causing a movement upward along the demand for loanable funds curve. At higher interest rates, borrowers are willing to borrow fewer funds, leading to a decrease in demand for loanable funds. Therefore, the correct answer is A - there is an upward movement along the demand for loanable funds curve.

When the Real Interest Rate Rises