Asked by Ahmed Dabour on May 10, 2024
Verified
Other things the same, an increase in the interest rate makes the quantity of loanable funds demanded
A) rise, and investment spending rise.
B) rise, and investment spending fall.
C) fall, and investment spending rise.
D) fall, and investment spending fall.
Interest Rate
The amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal, per unit of time.
Loanable Funds
The money available for borrowing in the financial markets, determined by the savings behavior of individuals and institutions and the central bank's monetary policy.
Investment Spending
Investment spending refers to expenditures made by businesses or individuals on capital goods intended to be used for future production.
- Evaluate the impact of interest rates on loanable funds and investment spending.
Verified Answer
JV
Jenna Van Der HulstMay 16, 2024
Final Answer :
D
Explanation :
An increase in the interest rate makes borrowing more expensive, which decreases the quantity of loanable funds demanded and reduces investment spending, as firms are less likely to borrow money for investment projects when interest rates are high.
Learning Objectives
- Evaluate the impact of interest rates on loanable funds and investment spending.