Asked by James Stupin on Apr 24, 2024
Verified
Which of the following is likely to happen if people suddenly become more willing to lend money?
A) An increase in demand for loanable funds will increase the interest rate.
B) An increase in the supply of loanable funds will increase the interest rate.
C) An increase in the supply of loanable funds will decrease the interest rate.
D) An increase in demand for loanable funds will decrease the interest rate.
E) A simultaneous increase in both the supply of and demand for loanable funds makes it impossible to predict what will happen to the rate of interest.
Loanable Funds
Funds available for borrowing in the financial market, influenced by interest rates and savings.
Interest Rate
The fee, represented as a percentage of the principal amount, that a lender imposes on a borrower for the utilization of assets.
Lend Money
The act of giving money to another party under the agreement that it will be repaid, often with interest, at a future date.
- Scrutinize how modifications in the supply and demand for loanable funds affect the interest rate.
Verified Answer
AH
Alexa Hoover5 days ago
Final Answer :
C
Explanation :
An increase in the willingness of people to lend money would mean there is an increase in the supply of loanable funds. With all other factors held constant, an increase in the supply of loanable funds will cause a decrease in the interest rate. This is because there will be more funds available for borrowing, causing lenders to lower their rates to compete for borrowers. Therefore, the correct answer is C.
Learning Objectives
- Scrutinize how modifications in the supply and demand for loanable funds affect the interest rate.
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