Learning Path
Question & Answer
Choose the Best Answer
It may lead to decreased private investment due to higher borrowing costs.
It will have no effect on private investment.
It will increase private investment by lowering interest rates.
It encourages private investment by increasing government spending.
Understanding the Answer
Let's break down why this is correct
When the discount rate rises, banks pay more to borrow from the central bank. Other options are incorrect because Many think the central bank does not influence private borrowing; Some think a higher discount rate lowers borrowing costs.
Key Concepts
Loanable Funds Market Analysis
medium level question
understand
Deep Dive: Loanable Funds Market Analysis
Master the fundamentals
Definition
Loanable Funds Market Analysis involves examining how changes in demand for loans impact real interest rates in response to shifts in investor optimism or pessimism about future business conditions. By analyzing graphs and understanding the relationship between loan demand and interest rates, economists can predict market reactions to economic uncertainties.
Topic Definition
Loanable Funds Market Analysis involves examining how changes in demand for loans impact real interest rates in response to shifts in investor optimism or pessimism about future business conditions. By analyzing graphs and understanding the relationship between loan demand and interest rates, economists can predict market reactions to economic uncertainties.
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