As real interest rates fall,firms desire to
A)buy more new equipment and buildings.This response helps explain why the supply of loanable funds is upward sloping.
B)buy more new equipment and buildings.This response helps explain why the demand for loanable funds is downward sloping.
C)buy less new equipment and buildings.This response helps explain why the supply of loanable funds is upward sloping.
D)buy less new equipment and buildings.This response helps explain why the demand for loanable funds is downward sloping.

Question

Quizplus · Accepted Answer

When real interest rates fall, borrowing money becomes cheaper, which encourages firms (and individuals) to take out loans to finance investments such as new buildings and equipment. This increase in demand for loanable funds puts upward pressure on interest rates because there are now more borrowers competing to borrow the same amount of available funds, and lenders can charge a higher price (interest rate) for their services. Thus, the demand for loanable funds is downward sloping, with quantity demanded increasing as interest rates fall.

As Real Interest Rates Fall,firms Desire to