In the market for loanable funds, the demand curve:
A) represents savers.
B) is downward sloping.
C) reflects that more people will choose to save the higher is the interest rate.
D) is upward sloping.

Question

Quizplus · Accepted Answer

The demand curve in the loanable funds market represents the demand for borrowing money by firms and individuals. As the interest rate increases, the cost of borrowing increases, and thus fewer firms and individuals will be willing to borrow money, resulting in a decrease in the quantity of loanable funds demanded. This gives rise to the downward sloping demand curve in the loanable funds market. Hence, option B is the correct answer. Option A is incorrect as the demand curve does not represent savers but the demand for borrowing funds. Option C is incorrect as the demand for borrowing will decrease as the interest rate rises, indicating that fewer people will choose to save. Option D is incorrect as the demand curve in the loanable funds market is downward sloping.

In the Market for Loanable Funds, the Demand Curve