Learning Path
Question & Answer
Choose the Best Answer
It leads to higher interest rates, which may discourage private investment.
It lowers interest rates, encouraging more private investment.
It has no effect on interest rates, thus maintaining private investment levels.
It causes private investors to increase their risk appetite regardless of interest rates.
Understanding the Answer
Let's break down why this is correct
When the government borrows more, it asks for more loanable funds from the market. Other options are incorrect because The idea that borrowing lowers rates comes from thinking supply of money increases; Some believe borrowing has no effect because they confuse supply and demand.
Key Concepts
Loanable Funds Market Analysis
hard level question
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Deep Dive: Loanable Funds Market Analysis
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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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