Why does the demand curve for loanable funds slope downward from left to right?
ID: 1139287 • Letter: W
Question
Why does the demand curve for loanable funds slope downward from left to right?
e The interest rate on a loan is directly proportional to demand.
What is the effect of an increase in the productivity of capital?
It decreases the supply of loanable funds.
If the U.S. economy experiences a major recession, then
the demand for loanable funds will shift left.
You deposit $1,000 in the bank and leave it for five years at 3 percent annual interest, making no additional transactions on this account. At the end of the five years, you withdraw the principal and any accumulated interest; the amount you would withdraw would be
more than $1,150 but less than $1,500.
Which description implies a drop in interest rates?
a Demand for loanable funds decreases more often than it increases.Explanation / Answer
1. Demand curve for loanable funds slope downward from left to right because interest rates on a loan has a negative relationship with demand for loan, i.e. demand is lower when interest rate is higher and when interest rate is lower, firms and individuals borrow more money cheaply.
Answer- option C
2. An increase in productivity of capital means rate of return on capital increases. It will increase investors confidence and they will demand more loanable funds.
Answer-option B
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