Final answer:
The demand for loanable funds is represented by entities that borrow money, such as businesses and the federal government. An increase in available loanable funds leads to a decrease in interest rates and an increase in the demand for funds.
Step-by-step explanation:
The demand for loanable funds refers to the groups or entities that borrow money. Business investments and the federal government are two examples of entities that demand (or borrow) the supply of savings.
For instance, businesses may borrow money to finance investments in factories, materials, and personnel. Similarly, the federal government borrows money from investors by selling Treasury bonds when it runs a budget deficit.
When there is an increase in the amount of available loanable funds, more individuals want to lend, resulting in a decrease in the interest rate. This decrease in the price of borrowing encourages more borrowing and, in turn, increases the demand for loanable funds.