Question

Select one of the following statements and give your interpretation of what is meant. Do you think the statement is accurate? What conditions would make it more or less true?

a. "The stock market's recent climb has been driven by falling interest rates."
b. "Future stock prices are dependent on the Fed's next policy meeting."
c. "Given a recent climb in stocks that cannot be explained by fundamentals, a correction is inevitable."
d. "Individual investors who purchase stock on margin might as well go to Vegas."
e. "During a major market downturn, market makers are suddenly not available."
f. "The trading floor may become extinct due to ECNs."

Answer 1

A rise in the supply of loanable funds leads to a decline in interest rates, as lenders have more capital to offer and may reduce rates to attract borrowers. An increase in the quantity of loans occurs with a rise in demand or supply.

Step-by-step explanation:

The question pertains to the relationship between supply and demand in the financial market and how changes in these elements can affect interest rates and the quantity of loans. In financial markets, as in other markets, price movement, including interest rates, is influenced by supply and demand.

A rise in supply of loanable funds, all else being equal, will lead to a decline in interest rates, as lenders will have more funds to offer, and they may lower the interest to attract borrowers.

Conversely, an increase in the quantity of loans made and received would typically result from a rise in demand (borrowers wanting more loans) and/or a rise in supply (more money being available to lend).