In the loanable funds market, when investors expect worsening economic conditions, the demand for loans typically ______, leading to a decrease in real interest rates.

In the loanable funds market, when investors expect worsening economic conditions, they often become less willing to borrow money. This is because they may fear that their investments will not pay off or that they will struggle to repay loans. As a result, the demand for loans decreases, which means fewer people and businesses are seeking to borrow funds. When the demand for loans goes down, lenders may lower their interest rates to attract borrowers, leading to a decrease in real interest rates. For example, if a business expects a recession, it might decide not to take out a loan for expansion, causing overall demand for loans to drop and interest rates to fall.