Other things remaining the same, as the real interest rate increases
A) firms will borrow more funds.
B) firms will borrow less funds.
C) firms' demand for funds will not change.
D) firms will purchase new capital with its own funds instead of taking a loan.
E) the demand for loanable funds curve shifts leftward.

Question

Quizplus · Accepted Answer

As the real interest rate increases, the cost of borrowing funds increases. Therefore, firms will be discouraged from borrowing funds and will borrow less. This is reflected in the downward sloping nature of the demand for loanable funds curve.

Other Things Remaining the Same, as the Real Interest Rate