Question

Which of the following will cause an increase in the amount of money that one wishes to hold?

Select one:
a. An increase in the interest rate
b. A reduction in income
c. A reduction in the interest rate
d. None of the options

Answer 1

An increase in money supply in the financial market typically leads to a decline in interest rates, while an increase in the demand for loans usually results in an increase in the quantity of loans made and received. The correct answer is option c.

Step-by-step explanation:

When discussing the financial market and the factors that can affect interest rates and loan quantities, it's important to understand the relationship between supply and demand and the resulting market equilibrium. An increase in the supply of money, such as when central banks inject more capital into the financial system, often leads to a decline in interest rates. This is because there is more money available for banks to lend out, creating more competition to lend, and therefore the rates go down to attract borrowers.

Conversely, an increase in demand for loans tends to lead to an increase in the quantity of loans made and received. As more people or businesses want to borrow money, the amount of loans given out tends to rise to meet this demand, assuming that the supply of loans doesn't change.