According to the loanable funds approach to interest rate determination,the demand curve slopes downward because:
A) when interest rates are low, inflation is low.
B) the lower the interest rates, the greater the demand for funds.
C) the higher the interest rates, the greater the demand for funds.
D) the lower the interest rates, the smaller the demand for funds.

Question

Quizplus · Accepted Answer

The loanable funds approach to interest rate determination argues that the demand for loanable funds decreases as interest rates increase, and vice versa. This is because at higher interest rates, borrowing becomes more expensive, and businesses and individuals may think twice before taking out loans. On the other hand, at lower interest rates, borrowing becomes cheaper, and there is more incentive for people to seek out loans for various purposes, such as investment or consumption. Therefore, the demand curve slopes downward, and choice B is the best answer.

According to the Loanable Funds Approach to Interest Rate Determination,the