-In the above figure, the demand for loanable funds curve is drawn for the average expected profit. If the real interest rate is constant at 6 percent and the expected profit falls, the amount of loanable funds demanded will be
A) less than $450 billion.
B) $450 billion.
C) between $450 billion and $600 billion.
D) greater than $600 billion.

Question

-In the above figure, the demand for loanable funds curve is drawn for the average expected profit. If the real interest rate is constant at 6 percent and the expected profit falls, the amount of loanable funds demanded will be
A) less than $450 billion. 
B) $450 billion. 
C) between $450 billion and $600 billion. 
D) greater than $600 billion.

Quizplus · Accepted Answer

When the expected profit falls, businesses are less likely to borrow money for investment because the return on their investments is expected to be lower. This leads to a decrease in the demand for loanable funds, shifting the demand curve to the left. Therefore, at a constant real interest rate of 6 percent, the amount of loanable funds demanded would be less than $450 billion.

-In the Above Figure, the Demand for Loanable Funds Curve