Suppose the real interest rate rises and the quantity of loanable funds decreases. These changes could have been the result of
A) firms expecting higher future profits.
B) an increase in disposable income.
C) an increase in household wealth.
D) a decrease in the default risk.

Question

Quizplus · Accepted Answer

An increase in household wealth can lead to a decrease in savings, reducing the supply of loanable funds, which can cause the real interest rate to rise and the quantity of loanable funds to decrease.

Suppose the Real Interest Rate Rises and the Quantity of Loanable