The quantity of loanable funds demanded increases if the real interest rate falls, all other things remaining the same, because the real interest rate
A) affects the supply of saving which, in turn, determines the quantity of investment.
B) affects the quantity of saving supplied.
C) is not related to the price of bonds and stocks.
D) is the opportunity cost of investment.
E) determines the cost of living.

Question

Quizplus · Accepted Answer

The real interest rate is the opportunity cost of investment, meaning that as it falls, borrowing becomes cheaper, encouraging more investment and thus increasing the demand for loanable funds.

The Quantity of Loanable Funds Demanded Increases If the Real