-In the above figure, the economy is at point a on the initial demand for loanable funds curve DLF₀. What happens if the real interest rate rises? A) There is a movement to a point such as b on the demand for loanable funds curve DLF₀. B) The demand for loanable funds curve shifts rightward to a curve such as DLF₂. C) The demand for loanable funds curve shifts leftward to a curve such as DLF₁. D) none of the above

Question

Quizplus · Accepted Answer

When the real interest rate rises, it becomes more expensive to borrow money. This typically results in a movement along the demand curve for loanable funds to a lower quantity of funds demanded, as represented by moving from one point to another on the same demand curve (e.g., from point a to point b).

-In the Above Figure, the Economy Is at Point a on the Initial