A local business owner anticipates a downturn in the economy and decides to delay expanding their operations, which would require taking out a loan. How is this decision likely to impact the loanable funds market and interest rates in the short term?

When a business owner decides to delay expanding their operations, they are choosing not to take out a loan at that moment. This means there will be less demand for loanable funds in the market because fewer businesses are looking for loans. When demand for loans decreases, lenders may lower interest rates to attract more borrowers, making loans cheaper for those who do want to borrow. For example, if other businesses also hold off on expansion, the overall demand for loans drops, leading to a general decrease in interest rates. In the short term, this could make it easier for people or businesses that still need loans to get better rates.