Final answer:
A fall in demand and a rise in supply in the financial market will both lead to a decline in interest rates, as they increase competition among lenders and reduce the cost to borrow. Monetary policy influences interest rates, but market-specific supply and demand set the actual rates. The correct option indicating an incorrect statement about money market fund strategies is a, where managers would likely opt for longer maturities if a decrease in interest rates is expected.
Step-by-step explanation:
The question posed is regarding the effects of various changes in the financial market on interest rates. Specifically, it asks which changes will lead to a decline in interest rates. To answer this, we must look at the basic principles of supply and demand in financial markets. When demand for credit falls (option b), lenders can't charge as much because there's less competition among borrowers for loans. Conversely, when the supply of credit rises (option c), there is an increased availability of funds, and lenders will compete more fiercely for borrowers, which usually results in lower interest rates.
Therefore, both a fall in demand and a rise in supply will lead to a decline in interest rates. It's important to understand that monetary policy can influence interest rates across the board, but the specific rates for loans and credit are largely determined by market forces. In situations where the federal funds rate decreases significantly, it is likely that other rates will follow to an extent, but the exact impact on longer-term loans will be less pronounced.
To address the student's original question regardin money market fund strategies, it's essential to clarify that: If money market fund managers expect interest rates to decrease, they may actually prefer to invest in securities with longer maturities to lock in higher interest rates before they fall, which means that statement a is not correct.