Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
An increase in business optimism generally leads to higher demand for loans.
B
A decrease in real interest rates signals a decrease in the demand for loans.
C
Investors are less likely to borrow when they expect economic downturns.
D
Higher real interest rates always result in increased investment activity.
E
A decrease in the required reserve ratio can stimulate the loanable funds market.
Understanding the Answer
Let's break down why this is correct
Answer
The loanable funds market is where savers supply funds that borrowers demand for loans. When people save more money, the supply of loanable funds increases, which can lower interest rates. On the other hand, if there are more borrowers needing loans, the demand for loanable funds increases, which can raise interest rates. For example, if a lot of people want to buy homes and need loans, banks may raise interest rates because of high demand. Understanding this market helps us see how savings, borrowing, and interest rates are connected.
Detailed Explanation
Other options are incorrect because Some might think that if businesses feel good about the economy, they will borrow more; People may believe that lower interest rates mean less borrowing.
Key Concepts
Loanable Funds Market Dynamics
Real Interest Rates
Macroeconomic Expectations
Topic
Loanable Funds Market Dynamics
Difficulty
medium level question
Cognitive Level
understand
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