Asked by Dakota Swader on Apr 24, 2024
Verified
The equilibrium interest rate
A) allocates the available supply of loanable funds to investment projects that have high enough rates of return to justify the borrowing.
B) rises when the supply of loanable funds increases.
C) is the price paid for the use of any resource.
D) affects the size of total output but not the composition of that output.
Equilibrium Interest Rate
The equilibrium interest rate is the rate at which the demand for funds equals the supply of funds in the financial markets, balancing savings and investments.
Loanable Funds
The total amount of financial capital available for borrowing in financial markets.
Investment Projects
Initiatives undertaken by individuals, companies, or governments to allocate resources in the expectation of future financial returns.
- Comprehend how alterations in the equilibrium interest rate influence the economy, especially in terms of output and the distribution of investment.
Verified Answer
BS
Benjamin Sievers8 days ago
Final Answer :
A
Explanation :
The equilibrium interest rate ensures that the available supply of loanable funds is allocated to those investment projects that have a rate of return high enough to justify the cost of borrowing. This process helps in efficient allocation of resources in the economy.
Learning Objectives
- Comprehend how alterations in the equilibrium interest rate influence the economy, especially in terms of output and the distribution of investment.