The real interest rate is ________ related to the supply of loanable funds because ________.
A) positively; the opportunity cost of consumption expenditure increases as the real interest rate rises.
B) negatively; the opportunity cost of consumption expenditure increases as the real interest rate rises.
C) positively; people are motivated to increase their consumption expenditure as the real interest rate rises.
D) negatively; people are motivated to save more as the real interest rate rises.
E) None of the above answers are correct.

Question

Quizplus · Accepted Answer

As the real interest rate rises, the opportunity cost of consuming now instead of saving increases, leading to more savings and thus a greater supply of loanable funds.

The Real Interest Rate Is ________ Related to the Supply