The real interest rate is ________ related to the supply of loanable funds because ________.
A) positively; the opportunity cost of consumption expenditure increases as the real interest rate rises
B) positively; people are motivated to increase their consumption expenditure as the real interest rate rises
C) negatively; the opportunity cost of consumption expenditure increases as the real interest rate rises
D) negatively; people are motivated to save more as the real interest rate rises
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

As the real interest rate rises, the opportunity cost of consuming now instead of saving increases, leading people to save more, thus increasing the supply of loanable funds.

The Real Interest Rate Is ________ Related to the Supply