Assume you borrow funds to buy a new car at 5 percent interest and you think that the economy-wide rate of inflation over the life of the loan will be 4 percent. If you are correct in your assumption, your real rate of interest on the car loan will be

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

A) A lower real interest rate makes more investment projects profitable. B) Consumers are willing to spend less and hence save more at higher real interest rates. C) Interest rate flexibility in financial markets assures an equilibrium in which saving equals investment. D) All of the above are reasons why the demand for loanable funds is negatively related to the real interest rate.

For substitutes, cross price elasticity of demand is:

a. Negative b. Positive c. between zero and one only d. zero.