Suppose business decision makers become more optimistic about future economic conditions and desire additional funds to expand their plant capacity.What is the likely effect on the loanable funds market?
A)The demand for loanable funds will rise and the interest rate will rise.
B)The demand for loanable funds will fall and the interest rate will fall.
C)The supply for loanable funds will rise and the interest rate will fall.
D)The supply for loanable funds will fall and the interest rate will rise.

Question

Quizplus · Accepted Answer

When business decision makers become more optimistic about future economic conditions and desire additional funds to expand their plant capacity, they will increase their demand for loanable funds. This will cause the demand curve for loanable funds to shift to the right, resulting in an increase in the interest rate. Therefore, the correct answer is A, the demand for loanable funds will rise and the interest rate will rise.

Suppose Business Decision Makers Become More Optimistic About Future Economic