Chapter 41, Problem 5MCQ

To determine

The correct option for the increase in demand for loanable funds.

Answer to Problem 5MCQ

Option a is correct.

Explanation of Solution

Explanation for the correct option:

a.

Economic growth is the major cause of increasing the demand for loanable funds. This is because at this time people required money for expansions, investments, etc. Therefore, option a is correct.

Explanation for incorrect options:

b.

If people are not having investment opportunities, then they will require less loanable funds. Thus it decreases the demand. Therefore, option b is incorrect.

c.

Recession is another reason for decreasing the demand for loanable funds. Therefore, option c is the incorrect answer.

d.

Reduction in savings will decrease the demand for loanable funds. Therefore, option d is incorrect.

e.

If there is a budget surplus, then the government can use its funds instead of taking loans from outside. Therefore, option e is incorrect.

Economics Concept Introduction

Balance of payment: Balance of payment is the recording of transactions that occur with one country and the rest of the world over a financial period. It records the trading of goods and services and transfers payments.