For the other non-price conditions, the increase in equilibrium interest rate leads to ___________?
Correct answer: D. decrease restrictiveness
- A. zero restrictiveness
- B. negative restriction
- C. increase restrictiveness
- D. decrease restrictiveness
Explanation
A higher equilibrium interest rate generally makes credit less restrictive because lenders have a greater incentive to supply funds, although borrowers face a higher financing cost. Thus, the restrictiveness of lending conditions 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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