Suppose that expected profit decreases. This change means
A) the demand curve for loanable funds shifts leftward and the real interest rate falls.
B) the supply curve for loanable funds shifts rightward and the nominal interest rate rises.
C) there is a movement down along the demand curve for loanable funds.
D) the real interest rate rises as saving increases.

Question

Quizplus · Accepted Answer

When expected profit decreases, firms are less inclined to borrow for investment purposes, leading to a leftward shift in the demand curve for loanable funds. This results in a lower equilibrium real interest rate as the quantity of loanable funds demanded decreases.

Suppose That Expected Profit Decreases. This Change Means