If the interest rate rises, the a. quantity of loanable funds demanded by firms decreases b. quantity of loanable funds demanded by government increases c. quantity of loanable funds demanded by government decreases d. quantity of loanable funds demanded by firms increases

If the interest rate rises, the a. quantity of loanable funds demanded by firms decreases b. quantity of loanable funds demanded by government increases c. quantity of loanable funds demanded by government decreases d. quantity of loanable funds demanded by firms increases

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter13: Valuation: Earnings-based Approach

Section: Chapter Questions

Problem 8QE

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Concept explainers

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.

Question

If the interest rate rises, the

	a.	quantity of loanable funds demanded by firms decreases
	b.	quantity of loanable funds demanded by government increases
	c.	quantity of loanable funds demanded by government decreases
	d.	quantity of loanable funds demanded by firms increases

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