An increase in the real interest rate in the United States changes the quantity of loanable funds demanded because
A)U.S.residents will want to buy more foreign assets.
B)Foreign residents will want to buy more U.S.goods and services.
C)U.S.firms will want to purchase fewer U.S.capital goods.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

An increase in real interest rates in the United States will increase the cost of borrowing for U.S. firms, which will result in a decrease in the quantity of loanable funds demanded. This is because firms will find it more expensive to invest in U.S. capital goods, leading to a reduction in investment and a fall in the quantity of loanable funds demanded. Choice A and B do not directly affect the quantity of loanable funds demanded.

An Increase in the Real Interest Rate in the United