ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When the economy is doing well, the rate of return on any investment spending will increase. That means the demand for loanable funds will increase, which leads to a higher real interest rate.

Detailed explanation-2: -The demand for loanable funds is decreasing as the interest rate increases. From the point of view of a borrower (the source of demand in the loanable funds framework), as interest rates increase, the cost of borrowing goes up and the person (or business) is less likely to borrow.

Detailed explanation-3: -When the relative demand for loanable funds increases, the interest rate goes up. When the relative supply of loanable funds increases, the interest rate declines. The demand for loanable funds is downward-sloping and its supply is upward-sloping.

Detailed explanation-4: -Demand of Loanable Funds As real interest rates fall, consumers and firms are more willing or more able to demand the same quantity of loanable funds, and therefore use and borrow more. When real interest rates increase, the quantity of loanable funds demanded decreases.

Detailed explanation-5: -Factors that shift the demand for loanable funds include: investment tax credit, changes in perceived business opportunities, and government borrowings.