Why Is the Demand to Borrow Positively Related to the Rate

question 77

Multiple Choice

Why is the demand to borrow positively related to the rate of economic growth?

• A) Lenders obtain additional wealth.
• B) It provides motivation to keep spending to a minimum.
• C) The incentive to invest is enhanced by economic growth.
• D) It increases the opportunity cost of borrowing.

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Definitions:

Fractional-reserve Banking

A banking system where banks hold only a fraction of their deposits in reserve, lending the rest to generate profits.

Money Supply

The collective volume of monetary assets within an economy at a certain point, including cash, coins, and balances in checking and savings accounts.

Fractional-reserve Banking

A banking system where banks hold only a fraction of deposits as reserves and lend out the remainder, thereby creating additional money supply.

Bank Runs

Situations where a large number of bank customers withdraw their deposits simultaneously due to fears that the bank will become insolvent.