Why is the demand for loanable funds downward sloping?
Understand the Problem
The question is asking for an explanation of why the demand for loanable funds is represented by a downward sloping curve. This involves understanding the relationship between interest rates and the quantity of funds demanded, typically explained by the idea that lower interest rates make borrowing cheaper, thus increasing the quantity of loanable funds demanded.
Answer
Higher interest rates lead to less borrowing; lower interest rates increase borrowing demand.
The final answer is the demand curve for loanable funds is downward-sloping because higher interest rates lead to less borrowing, and lower interest rates increase the demand for borrowing.
Answer for screen readers
The final answer is the demand curve for loanable funds is downward-sloping because higher interest rates lead to less borrowing, and lower interest rates increase the demand for borrowing.
More Information
As interest rates decrease, borrowing becomes cheaper, making it more attractive for businesses and individuals to take loans for investments or consumption.
Sources
- Capital, Loanable Funds, Interest Rate - Economics - CliffsNotes - cliffsnotes.com
- Solved The demand for loanable funds is downward-sloping - Chegg - chegg.com
- Reading: Loanable Funds | Microeconomics - courses.lumenlearning.com
