If the expected rates of return on investments increased, the loanable funds theory predicts that the equilibrium interest rate would decrease.

Question

Quizplus · Accepted Answer

According to the loanable funds theory, if the expected rates of return on investments increase, demand for loanable funds would increase as businesses seek more capital to invest in the now more profitable projects. This increased demand, all else being equal, would lead to an increase in the equilibrium interest rate, not a decrease.

If the Expected Rates of Return on Investments Increased, the Loanable