If expected profit falls, the demand for loanable funds curve shifts ________ and the real interest rate ________.

Question

Quizplus · Accepted Answer

If expected profit falls, firms will have less incentive to invest, which will lead to a decrease in the demand for loanable funds, shifting the demand curve leftward. As a result, the real interest rate will rise, as there will be less demand for borrowing and more supply of funds available. Therefore, Option D is the correct answer.

If Expected Profit Falls, the Demand for Loanable Funds Curve