When households decide to increase saving, real interest rates fall, and investment rises.

Name: When households decide to increase saving, real interest rates fall, and investment rises.
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Question

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When households decide to increase saving, they supply more funds to the loanable funds market. This increased supply of loanable funds leads to a decrease in real interest rates. Lower real interest rates make borrowing more attractive for businesses, leading to an increase in investment.

When Households Decide to Increase Saving, Real Interest Rates Fall