If firms became more optimistic about the future of the economy, which of the following occurs?
A) Investment demand increases and the demand for loanable funds curve shifts rightward.
B) Investment demand decreases and the demand for loanable funds curve shifts leftward.
C) The quantity of investment demanded increases and there is a movement down along the demand for loanable funds curve.
D) The quantity of investment demanded decreases and there is a movement up along the demand for loanable funds curve.
E) The saving decreases and the supply of loanable funds curve shifts leftward.

Question

Quizplus · Accepted Answer

When firms become more optimistic, they are more likely to invest in new projects and expand their operations. This leads to an increase in investment demand which, in turn, causes the demand for loanable funds curve to shift rightward as firms borrow more to finance their projects.

If Firms Became More Optimistic About the Future of the Economy