Question

Fred is considering expanding his dress shop. If interest rates rise he is a less likely to expand. This illustrates why the demand for loanable funds slopes downward. b more likely to expand. This illustrates why the supply of loanable funds slopes upward. c more likely to expand. This illustrates why the demand for loanable funds slopes upward. d less likely to expand. This illustrates why the supply of loanable funds slopes downward.

Answer 1

Answer:

This illustrates why the demand for loanable funds slopes downward

Explanation:

Fred's shop expansion requires investment, which might be borrowed as loan from financial markets.

Interest rate is the 'cost' of loan to the borrower. If it is high, the loan becomes more expensive for borrowed & is demanded less. If it is low, the loan becomes cheaper for borrower & is demanded more.

The above explanation shows the inverse relationship between interest rate & demand for loanable funds - higher loan demand at lower interest rate, lower loan demand at higher interest rate. This inverse relationship makes the demand curve downward sloping.

Fred's less likeliness to borrow for expansion of his dress shop at higher interest rate : is an illustration of - interest & loan demand inverse relationship and downwards sloping loan demand curve.