Asked by Kylie Gravel on May 28, 2024
Verified
If an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market?
A) Interest rates would increase and the quantity of funds loaned would decrease.
B) Interest rates would decrease and the quantity of funds loaned would increase.
C) Interest rates and the quantity of funds loaned would decrease.
D) Interest rates and the quantity of funds loaned would increase.
Economic Expansion
A phase of the business cycle where there is an increase in economic activity, marked by rising GDP, employment, and income levels.
Loanable Funds
The total amount of funds available for borrowing in the financial market, influenced by savings and investments.
- Recognize the variables contributing to fluctuations in the supply and demand for loanable funds.
- Gain insight into how investment decisions are influenced by changes in interest rates.
Verified Answer
ET
Eldric TajanlangitMay 28, 2024
Final Answer :
D
Explanation :
An increase in the demand for loanable funds, typically due to economic expansion, would lead to higher interest rates as borrowers are willing to pay more for capital. Simultaneously, the quantity of funds loaned would increase as lenders respond to the higher interest rates by making more funds available.
Learning Objectives
- Recognize the variables contributing to fluctuations in the supply and demand for loanable funds.
- Gain insight into how investment decisions are influenced by changes in interest rates.