Which of the Following Explains Why the Demand for Loanable

question 16

Multiple Choice

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

• A) A lower real interest rate makes more investment projects profitable.
• B) Consumers are willing to spend less and hence save more at higher real interest rates.
• C) Interest rate flexibility in financial markets assures an equilibrium in which saving equals investment.
• D) All of the above are reasons why the demand for loanable funds is negatively related to the real interest rate.

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Definitions:

Oligopolies

Market structures in which a few large firms dominate the industry, having significant market power to influence prices and terms of sale.

Market Power

The ability of a firm to influence or control the price and output level in the market.

Interdependence

The mutual reliance between two or more groups or sectors, especially in an economic context, where the actions of one directly affects the others.

Market Demand Curve

A graphical depiction showing the quantity of a commodity that consumers in a market will purchase at various prices.