Suppose the real interest rate increases from 4 percent to 6 percent. As a result,
A) governments decrease the quantity supplied of loanable funds.
B) firms increase their demand for loanable funds.
C) governments decrease their demand for loanable funds.
D) firms decrease the quantity demanded of loanable funds.
E) governments increase the supply of loanable funds.

Question

Quizplus · Accepted Answer

An increase in the real interest rate makes borrowing more expensive, so firms will decrease their quantity demanded of loanable funds.

Suppose the Real Interest Rate Increases from 4 Percent to 6