What is the effect of a decrease in expected profit?
A)The supply curve of loanable funds shifts rightward and the nominal interest rate rises.
B)The demand curve for loanable funds shifts leftward and the real interest rate falls.
C)The demand curve for loanable funds shifts rightward and the real interest rate rises.
D)The real interest rate rises as saving increases.
E)A movement down along the demand curve for loanable funds occurs.

Question

Quizplus · Accepted Answer

A decrease in expected profit will lead to a decrease in investment demand, which in turn will shift the demand curve for loanable funds to the left. As a result, the equilibrium real interest rate will fall.

What Is the Effect of a Decrease in Expected Profit