Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases demand for loans, raising interest rates.
B
It decreases supply of funds, lowering interest rates.
C
It has no effect on the equilibrium interest rates.
D
It leads to a decrease in demand for loans, lowering interest rates.
Understanding the Answer
Let's break down why this is correct
Answer
A sudden increase in investor confidence means that people and businesses feel more positive about the economy and are more willing to invest their money. This leads to more savings, as individuals and companies put aside more cash, which increases the supply of loanable funds in the market. When there are more funds available, banks can lend more money to borrowers, leading to lower interest rates. For example, if a business wants to expand and borrow money, it may find that the interest rate is lower because there are more funds available from confident investors. Overall, this creates a cycle where increased investment can stimulate economic growth.
Detailed Explanation
When investors feel confident, they want to borrow more money. Other options are incorrect because Some might think that more confidence means less money available; It's a common mistake to think confidence changes nothing.
Key Concepts
Loanable Funds Market
Interest Rates
Investor Confidence
Topic
Loanable Funds Market Dynamics
Difficulty
hard level question
Cognitive Level
understand
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