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Question
Microeconomics
Posted 6 months ago

What relationship is illustrated using the demand for loanable funds?
Choose 1 answer:
(A) Borrowers respond to a decrease in real interest rates by borrowing more money.
(B) Savers respond to an increase in interest rates by saving more money.
(c) Investors respond to an increase in interest rates by investing more money.

D Individuals respond to lower interest rates by increasing the amount of money they hold.
(E) The central bank responds to higher interest rates by supplying more money.
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Answer from Sia
Posted 6 months ago
Solution
a
Demand for Loanable Funds: The demand for loanable funds represents the relationship between the quantity of funds demanded by borrowers and the real interest rate
b
Borrowers' Response: Borrowers tend to borrow more money when real interest rates decrease because the cost of borrowing is lower
c
Correct Answer: Therefore, the correct answer is (A) Borrowers respond to a decrease in real interest rates by borrowing more money
Answer
(A) Borrowers respond to a decrease in real interest rates by borrowing more money.
Key Concept
Demand for Loanable Funds
Explanation
The demand for loanable funds curve illustrates how borrowers are more likely to borrow more money when real interest rates decrease, as the cost of borrowing becomes cheaper.

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