A fall in the real interest rate
A)increases the quantity of loanable funds demanded because firms will want to borrow more
B)decreases the quantity of loanable funds demanded because firms will want to borrow less.
C)increases the quantity of loanable funds supplied because firms will want to borrow more.
D)decreases the quantity of loanable funds supplied because firms will want to borrow less.

Question

Quizplus · Accepted Answer

A fall in the real interest rate makes borrowing cheaper, so firms are more likely to want to borrow to finance investment projects. This increases the quantity of loanable funds demanded.

A Fall in the Real Interest Rate