What happens to the demand for loanable funds curve when the economy enters a recession?
A) The demand for loanable funds curve shifts rightward because the real interest rate falls.
B) The demand for loanable funds curve shifts leftward because the real interest rate falls.
C) The demand for loanable funds curve shifts rightward because the expected rate of profit falls.
D) The demand for loanable funds curve shifts leftward because the expected rate of profit falls.
E) The demand for loanable funds curve shifts leftward because the purchasing power of wealth decreases.

Question

Quizplus · Accepted Answer

During a recession, businesses expect lower profits, reducing their incentive to borrow for investment, which shifts the demand for loanable funds curve leftward.

What Happens to the Demand for Loanable Funds Curve When