Consider the Market for Loanable Funds in the Long Run

question 95

Multiple Choice

Consider the market for loanable funds in the long run. The investment demand curve is downward sloping because

• A)a decrease in the real interest rate reflects a higher opportunity cost to firms of using loanable funds.
• B)all components of desired investment are negatively related to the real interest rate.
• C)an increase in the real interest rate leads to an increase in investment demand.
• D)an increase in the real interest rate reflects a lower opportunity cost to firms of using loanable funds.
• E)all components of desired investment are positively related to the real interest rate.

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Definitions:

Times-Interest-Earned Ratio

A metric used to evaluate a company's ability to meet its interest obligations, calculated as earnings before interest and taxes (EBIT) divided by interest expense.

EBIT

Earnings Before Interest and Taxes, a metric used to assess a company's financial performance, focusing purely on operational and production efficiency.

Net Profit

The amount of profit left over after all expenses and taxes have been subtracted from total revenue.

Pretax Profit

The earnings a company generates before taxes are deducted.