If the real interest rate rises from 3 percent a year to 5 percent a year,
A)there is a movement down along the supply of loanable funds curve.
B)the supply of loanable funds curve shifts rightward.
C)the nominal interest rate falls.
D)the demand for loanable funds curve shifts rightward.
E)there is a movement up along the demand for loanable funds curve.

Question

Quizplus · Accepted Answer

An increase in the real interest rate makes borrowing more expensive, which reduces the quantity of loanable funds demanded. This is represented by a movement up along the demand curve for loanable funds, not a shift of the curve.

If the Real Interest Rate Rises from 3 Percent a Year