Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Decrease in interest rates
B
Increase in interest rates
C
No change in the interest rate
D
Increase in savings
Understanding the Answer
Let's break down why this is correct
Answer
In the loanable funds market, an increase in the demand for loanable funds usually leads to higher interest rates. When more people or businesses want to borrow money, lenders realize they can charge more for the loans because there are more borrowers competing for the same funds. For example, if a new business wants to open and needs a loan, it adds to the overall demand for funds. As interest rates rise, this might make borrowing more expensive, which could lead some potential borrowers to reconsider or delay their plans. Overall, increased demand for loans signals a growing economy but can also make it tougher for some to access funds.
Detailed Explanation
When more people want to borrow money, lenders can charge higher interest. Other options are incorrect because Some might think that more demand means lower costs; It's easy to think that demand won't change prices.
Key Concepts
loanable funds
Topic
Loanable Funds Market Dynamics
Difficulty
easy level question
Cognitive Level
understand
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