What effect does a fall in the real interest rate have on the quantity of loanable funds?
A)It increases the quantity of loanable funds demanded.
B)It decreases the quantity of loanable funds demanded.
C)It increases the quantity of loanable funds supplied.
D)It does not affect the quantity of loanable funds supplied.

Question

Quizplus · Accepted Answer

When the real interest rate falls, borrowing becomes cheaper and more attractive for households and businesses. This incentivizes them to demand more loanable funds to finance investments or purchases, resulting in an increase in the quantity of loanable funds demanded.

What Effect Does a Fall in the Real Interest Rate