Why is the demand to borrow positively related to the rate of economic growth? Lenders obtain additional wealth. The incentive to invest is enhanced by economic growth. It increases the opportunity cost of borrowing. It provides motivation to keep spending to a minimum.

Question

Savage

Business

19 May, 15:33

Why is the demand to borrow positively related to the rate of economic growth? Lenders obtain additional wealth. The incentive to invest is enhanced by economic growth. It increases the opportunity cost of borrowing. It provides motivation to keep spending to a minimum.

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Answers (1)

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Weston Jennings · Answer 1

The incentive to invest is enhanced by economic growth.

Explanation:

In simple words, when the economic growth increase the returns from the investments also increases. Thus, people gets the incentive to invest more in the market and generally individuals starts investing more than their own personal savings.

As the returns in the market exceeds the borrowing rate, each individual in the economy starts borrowing in need for earning extra profits and income by assuming a certain level of risk.