In the context of the loanable funds market, how does an increase in the demand for loanable funds affect the equilibrium interest rate, considering both real and nominal interest rates?

In the loanable funds market, an increase in the demand for loanable funds means that more people or businesses want to borrow money. When this happens, lenders can charge higher interest rates because there are more borrowers competing for the same amount of available money. As a result, both the real interest rate, which adjusts for inflation, and the nominal interest rate, which does not, will rise. For example, if a business wants to expand and needs a loan, its request increases demand, pushing interest rates higher. This change helps balance the market by encouraging more savings, as higher rates make saving more appealing.