The concept of present value helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.

Question

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The concept of present value indicates that a dollar received in the future is worth less than a dollar today due to the opportunity cost of not having that dollar to invest. As interest rates increase, the cost of borrowing (and thus the future repayment amount) increases, making loans less attractive and decreasing the quantity of loanable funds demanded.

The Concept of Present Value Helps Explain Why the Quantity