Final answer:
Cash inflow results from a decrease in a liability account in accounting. In financial markets, an increase in the quantity of loans made and received can occur due to a rise in demand or supply. Correct answer is option b.
Step-by-step explanation:
An inflow of cash would result from the decrease in a liability account. In accounting, a decrease in a liability signifies that a company has paid off some of its debts or obligations, meaning cash leaves the liability account and is recorded as an inflow in the cash account. For example, when a company pays down a loan, the principle payment portion reduces the loan balance (a liability), which reflects as a cash outflow in the company's books. However, it is also an inflow to the cash account since it decreases a liability.
When considering changes in the financial market that will lead to an increase in the quantity of loans made and received, both an increase in demand for loans and an increase in the supply of loanable funds can contribute to this outcome. An increase in demand might occur due to higher investment opportunities that businesses and individuals are eager to pursue, creating more demand for loans. Conversely, a rise in supply can take place when lenders, such as banks, have more funds available to lend, perhaps due to increased savings or more favorable economic conditions.
Regarding interest rates, a decline in interest rates is generally seen when there is a rise in the supply of loanable funds. This can happen when banks or savers have more money to lend, thus increasing the supply of loanable funds and, as a result, putting downward pressure on interest rates. In contrast, a fall in supply would lead to higher interest rates as the scarcity of available funds to lend would allow lenders to charge more.