For the other non-price conditions, the decrease in equilibrium interest rate leads to _____________?
Correct answer: A. increase restrictiveness
- A. increase restrictiveness
- B. decrease restrictiveness
- C. zero restrictiveness
- D. negative restriction
Explanation
When equilibrium interest rates fall, lenders may compensate by imposing stricter non-price conditions, such as tighter collateral or credit requirements. Thus, restrictiveness can increase even when the quoted interest rate decreases.
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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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