Question

Greater optimism about the expected profits from investment projects A. shifts the demand for loanable funds curve leftward. B. causes a movement upward along the demand for loanable funds curve. C. causes a movement downward along the demand for loanable funds curve. D. shifts the demand for loanable funds curve rightward.

Answer 1

Option (D) is correct.

Step-by-step explanation:

When there is a greater optimism in the investors about the future profits from various investment projects then this will induces investors to invest more on these projects.

Hence, there is a need of more loanable funds and the demand for loanable funds increases. This will shift the demand curve for loanable funds rightwards. All the investors in the market wants to earn more profits in the future. This would also increases the interest rate on borrowings, because of the higher demand for loanable funds.