Question

Other things the same, if the interest rate falls, then a. firms will want to borrow less, which decreases the quantity of loanable funds supplied. b. firms will want to borrow more, which increase the quantity of loanable funds supplied. c. firms will want to borrow less, which decreases the quantity of loanable funds demanded. d. firms will want to borrow more, which increases the quantity of loanable funds demanded.

Answer 1

The correct option here is D) firms will want to borrow more, which will increase the quantity of loan able funds.

Step-by-step explanation:

When the interest rate in the economy is low, firms would want to borrow more because now they can borrow large sum of money for their investment project at cheaper borrowing cost.

In an economy, demand for loan will depend upon the borrowing.

If there is any change in investment demanded then there will be change in the demand for loan, and this change occurs due to government policies or decrease interest rate. Since interest rate is lowered , the demand for investment will increase and then the demand for loan would also increase.