Question

First​ Call, Inc. is a wireless service provider. First Call expects its profit to double next year. If other things remain the​ same, explain how this increase in expected profit influences First​ Call's demand for loanable funds. This increase in expected profit​ ______ the demand for loanable funds and brings​ ______ the demand for loanable funds curve.A. increases​; a movement along.B. increases​; both a movement along and a rightward shift of.C. does not​ change; a movement along.D. increases​; a rightward shift of.E. decreases​; a leftward shift of.

Answer 1

D) increases​; a rightward shift of

This increase in expected profit​ INCREASES the demand for loanable funds and brings​ A RIGHTWARD SHIFT OF the demand for loanable funds curve.

Step-by-step explanation:

Since First Call expects to double its profit, it will try to expand its operating activities and to do so they either issue new stocks or takes more loans (from banks or by issuing bonds). First Call's demand for new loans will cause the demand for loanable funds curve to shift to the right, changing the equilibrium loan price (interest rate). The new equilibrium point will be higher (higher interest rates = higher loan prices).