The demand curve for loanable funds slopes: upward since it takes a higher rate of return to get more funds. upward because higher rates of return are necessary to cover higher costs. downward because more potential projects yield 10% than yield 5%. downward because quantity demanded is lower when the price to borrow money is higher.

Question

Marcelo Bright

Business

21 March, 14:27

The demand curve for loanable funds slopes: upward since it takes a higher rate of return to get more funds. upward because higher rates of return are necessary to cover higher costs. downward because more potential projects yield 10% than yield 5%. downward because quantity demanded is lower when the price to borrow money is higher.

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Murray · Answer 1

downward because quantity demanded is lower when the price to borrow money is higher.

Explanation:

In this scenario, loanable funds will be treated like other commodities in the market. As per the law of demand, demand for a product is inversely related to its price. An increase or decrease in price results in demand moving in the opposite direction. A demand curve represents the relationship between demand and price. It is downward sloping and shows the quantity demanded at various prices.

The interest rate is the price of a loan. It is the cost of borrowing money. A high-interest rate makes a loan expensive, thereby discouraging borrowers from borrowing. At Low-interest rates, loans become affordable and attractive to firms and households. Lenders are likely to issue more loans when interest rates are low.