Suppose the Real Interest Rate Rises and the Quantity of Loanable

question 5

Multiple Choice

Suppose the real interest rate rises and the quantity of loanable funds increases. These changes could have been the result of

• A) firms expecting lower future profits.
• B) firms expecting higher future profits.
• C) in increase in the default risk.
• D) households expecting higher future income.

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Definitions:

Pay Dividend

The action by a company to distribute a portion of its earnings to its shareholders, usually in the form of cash or additional stock.

Return on Equity

A financial ratio that measures the profitability of a business in relation to shareholders' equity.

Profit Margin

A financial ratio that shows the percentage of revenue remaining after all operating expenses, interest, taxes, and dividends have been deducted.

Return on Assets

A financial ratio indicating how efficiently a company is using its assets to generate earnings.