As the interest rate (price for loanable funds) decreases, businesses will
A) find it less profitable to invest in capital goods, because the lower interest rate means that they will earn a lower return on their investments.
B) find it less profitable to invest in capital goods, because their costs of production will be higher.
C) increase their borrowings of loanable funds, because the cost of borrowing has declined relative to the benefits of borrowing.
D) decrease their borrowings of loanable funds, because there will now be cheaper ways to produce goods than to employ roundabout methods of production.
Correct Answer:
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