Arrange the following events in the correct order to illustrate the impact of investor expectations on the loanable funds market dynamics: A) Decrease in demand for loans B) Anticipation of deteriorating business conditions C) Lower real interest rates D) Reduced borrowing and investment activity

To understand how investor expectations affect the loanable funds market, we start with the anticipation of deteriorating business conditions. When investors expect tough times ahead, they become cautious and this leads to a decrease in demand for loans, as they are less likely to borrow money for new projects. With less demand for loans, lenders may lower real interest rates to encourage borrowing, which is step three. Finally, as a result of lower interest rates and decreased confidence, there is reduced borrowing and investment activity, meaning businesses are less likely to take risks. This sequence shows how investor expectations can directly influence the availability and cost of loans in the market.