Final answer:
When inventory unit prices rise, the LIFO reserve increases because the COGS is higher using LIFO than it would be with FIFO, reducing taxable income. In financial markets, an increase in the quantity of loans is caused by a rise in demand for loans or a rise in supply.
Step-by-step explanation:
The LIFO (Last-In, First-Out) reserve is an accounting method used to adjust the difference in cost of goods sold (COGS) between the LIFO and FIFO (First-In, First-Out) methods. When inventory unit prices rise, the LIFO reserve is most likely to increase. This is because the most recently acquired inventory, which is more expensive due to inflation or other factors, is sold first under LIFO, leaving older, cheaper inventory in stock. An increase in the LIFO reserve indicates that the COGS under LIFO is higher than it would have been under FIFO, thus reducing taxable income.
In the context of financial markets, an increase in the quantity of loans made and received can be influenced by both supply and demand factors. Considering the supply side, a rise in the supply of loans generally leads to an increase in the quantity of loans. This could be due to factors such as lower interest rates or more favorable lending conditions. Similarly, an increase in the demand for loans, driven by borrowers seeking more credit, can also lead to an increased quantity of loans provided that lenders are willing to meet this increased demand. Both scenarios imply that there is a greater willingness or capacity by lenders to offer loans and/or a greater desire by borrowers to take out loans.