The business demand for loanable funds is _ _ _ related to the number of projects undertaken, and...

Question:

The business demand for loanable funds is _ _ _ related to the number of projects undertaken, and is therefore _ _ _ related to the interest rate.

A. inversely; positively

B. positively; positively

C. inversely; inversely

D. positively; inversely

Equilibrium Interest Rate:

The equilibrium interest rate is the interest that funds are lent out. The equilibrium interest is established through the interaction of demand and supply of loanable funds. At the point where the demand and the supply of loanable funds intersect, that is the interest rate in the market.

Answer and Explanation:

The correct choice is (D) positively; inversely

The number of projects is positively related to the loanable funds. As the number of projects increases, the loanable funds also increases because more fiances will be required to finance a project. On the other hand, loanable funds are inversely related interest rates. As the interest rates increase the demand for loanable funds will decrease since the cost of loanable funds will increase.


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Loanable Funds: Definition & Theory

from Introduction to Business: Homework Help Resource

Chapter 25 / Lesson 29
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