Final answer:
The correct answer is A.increases at a faster pace than the supply of loanable funds increases; trends upward.
Step-by-step explanation:
Over time, on average, the demand for loanable funds tends to increase due to factors such as economic growth, inflation, and population growth. However, the real interest rate's change depends on how the supply of loanable funds compares to the demand for them.
If the demand for loanable funds increases at a faster pace than the supply of loanable funds, then borrowers are competing more intensely for available funds. As a result, lenders can charge higher rates, and the real interest rate trends upward. This would correspond to option A.
Conversely, if the demand for loanable funds increases at a slower pace than the supply, the greater availability of funds drives down the price of borrowing, hence the real interest rate trends downward, aligning with option B. Increasing supply, such as an influx of savings, would create downward pressure on interest rates because there are more people willing to lend, as explained in reference 7.
If demand and supply increase at a similar pace, the real interest rate would generally have no trend or remain stable, corresponding to option C. Lastly, if demand increases while the supply of loanable funds decreases, we can expect the real interest rate to trend upward because funds are scarcer for borrowers, aligning with option D.
Additionally, reference 8 indicates that an increase in supply in the financial market will lead to an increase in the quantity of loans made and received.