Question

explain why the demand for loanable funds slopes downward and the supply of loanable funds slopes upward.

Answer 1

• The demand curve for loanable funds usually slopes downwards and the supply of loanable funds usually slopes upwards.
• When the interest rates decreases, firm's and individuals can easily borrow money as it becomes cheaper.
• This means that when the interest rate lowers, the quantity of loans borrowed increases.
• This causes the demand curve for loanable funds to slope downwards.
• When the interest rates Increases, people get a higher return on their money.
• This makes them more willing to save more money which leads to the upward slope of the supply curve.