The supply of and demand for loanable funds directly depends on:

Question

Quizplus · Accepted Answer

The real interest rate plays a crucial role in determining the supply of and demand for loanable funds. As the real interest rate increases, the incentive for individuals to save increases, leading to a greater supply of loanable funds. At the same time, a higher real interest rate increases the cost of borrowing, leading to a lower demand for loanable funds. Conversely, a decrease in the real interest rate would decrease the supply of loanable funds and increase the demand for loanable funds. Therefore, the supply of and demand for loanable funds directly depends on the real interest rate.

The Supply of and Demand for Loanable Funds Directly Depends