A fall in the real interest rate brings a
A) movement down along the demand for loanable funds curve but no shift in the curve.
B) rightward shift of the demand for loanable funds curve but no movement along the curve.
C) movement up along the demand for loanable funds curve.
D) leftward shift of the demand for loanable funds curve.
E) movement down along the demand for loanable funds curve and a rightward shift of the demand for loanable funds curve.

Question

Quizplus · Accepted Answer

A fall in the real interest rate decreases the cost of borrowing and increases the incentive for households and firms to borrow. This leads to a movement down along the demand for loanable funds curve, as they seek to borrow more at the lower interest rate. There is no shift in the curve because the factors that would cause it to shift, such as changes in consumer or business confidence or changes in government policy, have not changed with the decrease in interest rates.

A Fall in the Real Interest Rate Brings a