Since the real interest rate represents the cost of borrowing money to support investment projects, investment is dependent upon it. Businesses are less likely to take on projects with larger financing costs when real interest rates are high, which raises borrowing costs and reduces investment. On the other hand, borrowing costs go down when the real interest rate is low, which motivates businesses to spend more in initiatives that have the potential to provide returns greater than the cost of borrowing. The real interest rate is adjusted towards the equilibrium level if the actual interest rate deviates from the real interest rate of equilibrium. Various factors, including market expectations, central bank policies, and economic conditions, influence this adjustment. For instance, if the real interest rate is lower than the equilibrium rate, the real interest rate may rise as a result of more people wanting loans because borrowing is less expensive. In contrast, lower loan demand may put pressure on the real interest rate to decline if it is higher than the equilibrium rate