As the ________ interest rate increases, the quantity of loanable funds demanded ________.
A)real; increases
B)real; decreases
C)nominal; increases
D)nominal; decreases
E)none of the above. There is no relationship between interest rates and loanable funds.

Question

Quizplus · Accepted Answer

As the real interest rate increases, the cost of borrowing increases, making borrowing less attractive. This, in turn, leads to a decrease in the quantity of loanable funds demanded. As a result, borrowers are less willing to borrow at higher interest rates, reducing the overall demand for loanable funds.

As the ________ Interest Rate Increases, the Quantity of Loanable