An increase in the demand for loanable funds will occur if there is A. an increase in the real interest rate. B. an increase in the nominal interest rate accompanied by an equal increase in inflation. C. a decrease in the real interest rate. D. an increase in expected profits from firm investment projects.

The correct answer is letter "D":  an increase in expected profits from firm investment projects.

Explanation:

The market of loanable funds represents the fluctuations in the borrowing of a market. The demand for loanable funds depends on borrowing as well. Two main factors cause changes in the demand for loanable funds: changes in the expected Rate of Return (RoR) on investment spending and government policies.

In this scenario, the real interest rate follows the trend of the market. It implies if the RoR on investments increases, the real interest rate will increase as well. If the economy is underperforming, the real interest rate will decrease.

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

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