Question

If private investors become less optimistic about the economy, we can expect that demand for loanable funds will increase. supply of loanable funds will increase. demand for loanable funds will decrease. supply of loanable funds will increase and demand for loanable funds will increase. loanable funds will not be impacted by this action.

Answer 1

demand for loanable funds will decrease

Step-by-step explanation:

Loanable funds is the total of all funds that people have saved and deposited in the savings account of commercial banks. This saved funds are in turn lended out to borrowers so as to gain returns (interest) on it.

When a private investor becomes less optimistic, they would not want to invest their money in loan able funds, therefore the demand for loan able funds will decrease which leads to reduction in the real interest rate.