An increase in the real interest rate results in which of the following? A. an increase in the demand for loanable funds B. a decrease in the demand for loanable funds C. an increase in the quantity of loanable funds supplied D. Both B and C will occur as a result of an increase in the real interest rate.

Question

Emerson Burns

Business

14 August, 21:41

An increase in the real interest rate results in which of the following? A. an increase in the demand for loanable funds B. a decrease in the demand for loanable funds C. an increase in the quantity of loanable funds supplied D. Both B and C will occur as a result of an increase in the real interest rate.

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Answers (2)

Know the Answer?

Yair Liu · Answer 1

B. a decrease in the demand for loanable funds.

Explanation:

An increase in the real interest rate will result in a decrease for the loanable funds.

Loans act as a fund that is an amount of money borrowed by the companies to be utilized for the running of the business. Interest is the amount payable at a certain rate on the amount borrowed in the form of loans. Loans are generally provided by either the banks or the financial institutions to the public or even companies.

The higher the rate of interest the lesser the demand for loans is there. Interest is charged on loans because it is a facility given.

Parker Liu · Answer 2

An increase in the real interest rate results in a decrease in the demand for loanable funds. Hence, the answer in this case would be option B. among the answer choices or list presented in the question.

Explanation:

A market for loanable funds represent a monetary or financial market where the main commodity or good that is commercially exchanged or bought and sold is money. The borrowers of loanable funds demand money and the suppliers of loanable funds are the ones who save money and lends them to the borrowers in the market The price or the value of money in the market for loanable funds is denoted by the real market interest rate. Now, the real interest rate has a negative or inverse relationship with the demand for money or loanable funds. As the real interest rate increases in the market, the financial cost of borrowing for the borrowers also increases. In other words, the borrowers of loanable funds or money would now have to pay higher periodic interest on any financial borrowing or loan to the suppliers or lender and vise versa. Therefore, as real interest rises the money or loanable funds demand decreases and vise versa.