Answer :
Answer:
b. buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.
Explanation:
When interest rates fall, buying new equipment and buildings is more desirable for firms because they can borrow money at a lower cost or interest rate, therefore the profit that they have to make from these buildings and equipment can be lower because the cost is lower. For example if the interest rate is 10%, then firms will only borrow money and buy new equipment and buildings if they can earn a profit of more than 10% from them, but if the interest rate is 5% than the firms can buy equipment or buildings if their expected profit is just above 5%. We can view interest rates as the price for loanable funds and thus when interest rates are lower people have higher demand for loanable funds, that is why the demand curve is downward sloping because when interest rates fall the demand for loanable funds increases.