Final answer:
The real interest rate increases when the demand for loanable funds shifts right because borrowers compete for the available funds, which drives up the price of borrowing.
Step-by-step explanation:
When the demand for loanable funds shifts right, meaning there is an increased desire to borrow money, the real interest rate generally increases. In a supply and demand model of the loanable funds market, the interest rate is determined by the intersection of the supply curve (savers providing funds) and the demand curve (borrowers seeking funds). When more people or businesses want to borrow money, and the amount of funds available for lending has not changed, borrowers are willing to pay a higher interest rate to access these funds, which causes the interest rate to go up.
In the context of financial markets, an increase in the demand for loanable funds suggests more borrowers entering the market. This creates competition among borrowers, pushing up the price of borrowing. Conversely, an increase in the supply of loanable funds would decrease the interest rate as more lenders would bid to lend their money, making it cheaper for borrowers to take out loans.