Question

An increase in the real interest rate A. increases the quantity of loanable funds supplied. B. has no effect on the loanable funds. C. shifts the supply of loanable funds curve rightward. D. increases current consumption. E. decreases the quantity of loanable funds supplied.

Answer 1

Option (A) is correct.

Step-by-step explanation:

We know that the real interest rate is determined by the demand and supply of loanable funds. The supply of the loanable funds has a direct relationship with the real interest rate. On the other hand, the demand for a loanable funds has a negative relationship with the real interest rate.

This indicates that an increase in the real interest will results in an increase in the quantity supplied of loanable funds as it will be more profitable for the lenders.