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Investment Demand in the Loanable Funds Market

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Private firms expect lower returns on their investment projects during an economic downturn. How would this expectation be reflected in the Loanable Funds Market graph?

A

The supply of loanable funds shifts left, causing a rise in the equilibrium interest rate and a reduction in available funds.

B

The supply of loanable funds shifts right, thereby reducing the equilibrium interest rate and increasing available funds.

C

The demand for loanable funds shifts right, leading to an increase in both the real interest rate and the volume of funds exchanged.

D

The demand for loanable funds shifts left, which decreases both the equilibrium real interest rate and the volume of funds borrowed.

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