Final answer:
The demand for loanable funds is primarily driven by businesses that need to finance growth and investment, and by the federal government when it needs to finance deficits.
Step-by-step explanation:
The correct answer is:
B. The demand for loanable funds is driven by businesses seeking to invest and expand.
In the context of loanable funds, the demand side represents borrowers who require financial capital to invest in various projects, expand their businesses, or make capital expenditures. Therefore, the primary source of demand for loanable funds stems from businesses and entrepreneurs seeking funds to invest in new ventures, expand operations, purchase equipment, or undertake other productive activities.
While individuals wanting to save money (A) may contribute to the supply of loanable funds by depositing their savings in financial institutions, the demand side, which drives the need for borrowing funds, primarily comes from businesses seeking capital for investments.
Similarly, while governments (C) often borrow funds for public projects, infrastructure development, or other initiatives, the demand from businesses for investment purposes tends to be a more significant factor in the overall demand for loanable funds.
Interest rates (D) set by financial institutions play a role in influencing both the supply and demand for loanable funds but do not solely determine the demand side, which is primarily driven by businesses seeking to invest and expand.