Suppose the real interest rate increases from 4 per cent to 6 per cent. As a result,
A) firms increase their demand for loanable funds.
B) governments decrease their demand for loanable funds.
C) firms decrease the quantity demanded of loanable funds.
D) governments decrease the quantity supplied of loanable funds.
E) governments increase the supply of loanable funds.

Question

Quizplus · Accepted Answer

When the real interest rate increases, the cost of borrowing also increases. This typically leads to a decrease in the quantity demanded of loanable funds by firms, as borrowing becomes more expensive.

Suppose the Real Interest Rate Increases from 4 Per Cent