An increase in the demand for loanable funds will occur if there is

Question

Quizplus · Accepted Answer

An increase in expected profits from firm investment projects will increase the demand for loanable funds as firms will want to borrow more to finance their investment projects. Higher profits signal a greater return on investment and an opportunity for future growth, which leads to increased borrowing for investment. Conversely, an increase in the real interest rate (option A) and a decrease in the real interest rate (option B) would affect the supply of loanable funds, not the demand. Option D is incorrect because an increase in the nominal interest rate accompanied by an equal increase in inflation would not affect the real interest rate or the demand for loanable funds.

An Increase in the Demand for Loanable Funds Will Occur