Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Interest rates will rise due to increased demand for funds.
B
Interest rates will fall as banks compete for borrowers.
C
Interest rates will remain unchanged as the supply of loanable funds is fixed.
D
Interest rates will fluctuate unpredictably without a clear trend.
Understanding the Answer
Let's break down why this is correct
Answer
When investor confidence suddenly increases, more people and businesses want to borrow money, which raises the demand for loans. In the loanable funds market, this higher demand means that lenders can charge more for the money they lend. As a result, interest rates are likely to rise because lenders want to earn more from their loans. For example, if a new business wants to expand and takes out a larger loan, the bank may increase the interest rate to make the loan more profitable. Overall, more demand for loans typically leads to higher interest rates in the market.
Detailed Explanation
When more people want to borrow money, banks can charge higher interest rates. Other options are incorrect because This idea suggests that banks will lower rates to attract borrowers; This option assumes that the amount of money available to lend won't change.
Key Concepts
Loanable Funds Market
Interest Rate Determination
Investor Confidence
Topic
Loanable Funds Market Dynamics
Difficulty
hard level question
Cognitive Level
understand
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