According to loanable funds theory, the fall in interest rates result into ____________?
Correct answer: C. higher demand of funds
- A. zero demand of funds
- B. equilibrium demands of funds
- C. higher demand of funds
- D. lower demand of funds
Explanation
In loanable-funds theory, a lower interest rate reduces the cost of borrowing, encouraging households and firms to demand more funds. Thus demand for funds rises, although the exact equilibrium quantity also depends on supply.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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