Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Demand for loans decreases, leading to lower interest rates
B
Supply of loans increases, raising interest rates
C
Demand for loans increases, lowering interest rates
D
Supply of loans decreases, keeping interest rates stable
Understanding the Answer
Let's break down why this is correct
Answer
When investor sentiment worsens, it typically means that people are feeling less confident about the economy and future investments. This can lead to a decrease in the demand for loans because businesses and individuals may hesitate to borrow money for new projects or purchases. As demand for loans falls, the supply of loanable funds can also change; lenders may be less willing to lend if they believe borrowers are more risky or if they expect defaults to rise. For example, if a business owner is unsure about the future, they might decide not to take out a loan to expand their operations. Overall, this combination of reduced demand for loans and cautious lending can lead to higher interest rates and less investment in the economy.
Detailed Explanation
When investors feel less confident, they borrow less money. Other options are incorrect because Some might think that less borrowing means more loans available; This option suggests more demand for loans.
Key Concepts
Loanable Funds Market
Interest Rates
Investor Sentiment
Topic
Loanable Funds Market Dynamics
Difficulty
easy level question
Cognitive Level
understand
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