What Effect Does a Fall in the Real Interest Rate

question 169

Multiple Choice

What effect does a fall in the real interest rate have on the quantity of loanable funds?

• A) It increases the quantity demanded and decreases the quantity supplied.
• B) It decreases both the quantity demanded and supplied.
• C) It increases both the quantity demanded and supplied.
• D) It decreases the quantity demanded and increases the quantity supplied.

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Definitions:

Utils

A hypothetical unit of measurement used in economics to represent the satisfaction or utility that a consumer receives from consuming goods and services.

Substitution Effect

The change in consumption patterns due to a change in relative prices, where consumers replace more expensive items with less costly alternatives.

Inferior Good

Items for which demand falls when the income levels of buyers go up, unlike standard goods that see an increase in demand with rising incomes.

Income Effect

How shifts in the financial status of individuals or whole economies affect their purchasing desires for specific goods or services.