Question

Answer the following four questions related to the market for loanable funds.

1. What effect will an increase in the interest rate have on the quantity of loanable funds applied?

a. quantity supplied will increase

b. quantity supplied will decrease

c. Some lenders will offer more while others will offer less.

d. No change in quantity supplied

2. As the interest rate decreases, what happens to the quantity of loanable funds demanded?

a. Some borrowers will demand more and others will demand less

b. quantity demanded will increase

c. No change in quantity demanded

d. quantity demanded will decrease

3. Which of the following acts as a price in the market for loanable funds?

a. Interest rate

b. Capital

c. Demand

d. Supply

4. If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act?

a. The business will not take the loan

b. The business will take the loan

c. The business will demand more funds to cover the shortfall

d. Business will take the loan irrespective of the interest rate