Sia
Question
Statistics
Posted 8 months ago
Which of the following best describes the impact of a decrease in the demand for capital on the interest rate and the quantity of loans made?
Choose 1 answer:
(A) Interest rate decreases; quantity of loans made decreases.
(B) Interest rate increases; quantity of loans made decreases.
(C) Interest rate increases; quantity of loans made decreases.
(D) Interest rate increases; quantity of loans made increases.
(E) Interest rate decreases; quantity of loans made is not affected.
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Answer from Sia
Posted 8 months ago
Solution by Steps
step 1
To understand the impact of a decrease in the demand for capital on the interest rate and the quantity of loans made, we need to analyze the market for loanable funds
step 2
In the market for loanable funds, the demand curve represents the demand for capital (loans), and the supply curve represents the supply of savings
step 3
A decrease in the demand for capital shifts the demand curve for loanable funds to the left
step 4
When the demand curve shifts to the left, the new equilibrium point will have a lower interest rate and a lower quantity of loans made
step 5
Therefore, the correct answer is that the interest rate decreases and the quantity of loans made decreases
A
Key Concept
Market for loanable funds
Explanation
A decrease in the demand for capital shifts the demand curve for loanable funds to the left, resulting in a lower equilibrium interest rate and a lower quantity of loans made.
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