Question 1. Which of the following explains why the demand for loanable funds is negatively related to the real interest rate? Interest rate flexibility in financial markets assures an equilibrium in which saving equals investment. A lower real interest rate makes more investment projects profitable. Consumers are willing to spend less and hence save more at higher real interest rates. All of the above are reasons why the demand for loanable funds is negatively related to the real interest rate. None of the above.

7DCYLH The Asker · Economics

1. Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

Interest rate flexibility in financial markets assures an equilibrium in which saving equals investment.

A lower real interest rate makes more investment projects profitable.

Consumers are willing to spend less and hence save more at higher real interest rates.

All of the above are reasons why the demand for loanable funds is negatively related to the real interest rate.

None of the above.

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TTA7LE

The correct option is b ie  a lower real interest rate makes makes more investment projects profitable. A lower interest rate implies lower cost of borrowing so individuals or firms with productive in ... See the full answer