Multiple Choice QuestionWhich factor would increase the demand for loanable funds?Multiple choice question.Anything that increases the rate of return on potential investmentsAnything that would cause households to be thriftierAnything that would cause households to be less thriftyAnything that decreases the rate of return on potential investments
Question
Multiple Choice QuestionWhich factor would increase the demand for loanable funds?Multiple choice question.Anything that increases the rate of return on potential investmentsAnything that would cause households to be thriftierAnything that would cause households to be less thriftyAnything that decreases the rate of return on potential investments
Solution
The correct answer is "Anything that increases the rate of return on potential investments".
Here's why:
The demand for loanable funds is determined by the willingness of firms to borrow money to engage in new investment projects. If the rate of return on potential investments increases, firms are more likely to undertake these investments, and thus, they would demand more loanable funds.
On the other hand, if households become thriftier, they would save more and consume less, which would increase the supply of loanable funds, not the demand. If households become less thrifty, they would save less and consume more, which would decrease the supply of loanable funds, not the demand.
Lastly, if the rate of return on potential investments decreases, firms are less likely to undertake these investments, and thus, they would demand fewer loanable funds.
Similar Questions
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Multiple Choice QuestionDue to technological improvements a firm now expects a 15% increase on the rate of return of an investment as opposed to a 7% return on investment. They demanded no ($0) loanable funds at an interest rate of 10%. Would it be in the best interest of the firm to reconsider its level of demand of loanable funds?Multiple choice question.No, because its rate of return is now greater than the cost of the loanable funds.Yes, because its rate of return is now less than the cost of the loanable funds.Yes, because its rate of return is now greater than the cost of the loanable funds.No, because its rate of return is now less than the cost of the loanable funds.
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