A decrease in the cost of borrowing (interest rate) will case a) the demand for loanable funds to increase. b) the supply of loanable funds to decrease. c) both A and B. d) either A or B, but not both. e) none of the above.
The answer is e, but why? Doesn't a decrease in the interest rate will cause people to save less, but it causes firms to invest more? Why is the answer not c?