An increase in the real interest rate the quantity of loanable funds supplied and
The quantity of loanable funds demanded.
A) decreases; increases
B) increases; decreases
C) decreases; decreases
D) increases; increases

Question

Quizplus · Accepted Answer

According to the law of supply and demand, an increase in the real interest rate will lead to a decrease in the quantity of loanable funds demanded by borrowers, as borrowing becomes more expensive. Conversely, an increase in the real interest rate will lead to an increase in the quantity of loanable funds supplied by lenders, as they are willing to save more at higher interest rates. Therefore, choice B correctly identifies that an increase in the real interest rate will cause the quantity of loanable funds supplied to increase and the quantity of loanable funds demanded to decrease.

An Increase in the Real Interest Rate the Quantity of Loanable