Suppose while households are deciding to increase saving,the demand by firms for investment funds falls.In the market for loanable funds the real interest rate will ___ and the quantity of loanable funds will _____.
A) rise;fall
B) rise;rise
C) fall;rise,fall,or stay the same
D) rise,fall,or stay the same;rise.

Question

Quizplus · Accepted Answer

When households increase savings, the supply of loanable funds increases, which tends to lower the real interest rate. If firms demand less investment funds simultaneously, the demand for loanable funds decreases, reinforcing the downward pressure on the real interest rate. The quantity of loanable funds could rise, fall, or stay the same depending on the relative shifts in supply and demand.

Suppose While Households Are Deciding to Increase Saving,the Demand by Firms