Suppose the Real Interest Rate Increases from 4 Per Cent

question 55

Multiple Choice

Suppose the real interest rate increases from 4 per cent to 6 per cent. As a result,

• A) firms increase their demand for loanable funds.
• B) governments decrease their demand for loanable funds.
• C) firms decrease the quantity demanded of loanable funds.
• D) governments decrease the quantity supplied of loanable funds.
• E) governments increase the supply of loanable funds.

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Definitions:

Elastic

Describes a situation where the quantity demanded or supplied of a good or service is sensitive to changes in price.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Price Taker

An entity that accepts market prices as given, without having influence to change the price by its own actions.

Buyer

An individual or entity that purchases goods or services for personal use or ownership rather than for reselling or producing other goods and services.