Which of the following changes in the loanable funds market will decrease the equilibrium real interest rate?
a.A decrease in private savings
b.A decrease in the expected inflation rateBAn increase in government spending on highways financed by borrowing
C.An increase in foreign financial capital inflows
D.An investment tax credit for plant and equipment

Any event that would either decrease the demand for loanable funds or increase the supply of loanable funds will decrease the equilibrium interest rates. Supply of loanable funds is affect by the amount of national savings. National savings in turn, is the sum of private savings, public saving and net capital inflow.

In option C, capital inflows are increasing. This means that there would be an excess supply of money in the economy which can be converted into loanable funds. This would, therefore, push the supply curve to the right thereby reducing the real interest rate equilibrium.

Parrain Parrain · Answer 2 · 2021-12-02T15:09:39+01:00

The loanable funds market will see a decrease in real interest rates if there is C. An increase in foreign financial capital inflows.

The interest rate in the loanable funds market will decrease when the supply of funds increases. This can happen when:

People begin to save more
The government embarks on an expansionary monetary policy
More foreign funds came into the country

The increase in foreign financial capital means that there is now more money to loan to people so the interest rates will decrease.

In conclusion, an increase in funds will decrease the interest rates.

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