Which of the following statements is CORRECT?

Question

Quizplus · Accepted Answer

If expected inflation increases, lenders will demand a higher interest rate to compensate for the expected loss in purchasing power of the money they receive in repayment.

Answer: B 
 If individuals in general increase the percentage of their income that they save, the supply of funds loanable will increase, leading to a decrease in the equilibrium interest rate unless the demand for credit also increases, which is unlikely to happen in this scenario.

Answer: C 
 If companies have fewer good investment opportunities, they will be less likely to borrow new funds, and as a result, demand for credit will decrease relative to the supply. This scenario will cause a decrease in the equilibrium interest rate, all else equal.

Answer: D 
 Interest rates on all debt securities tend to decrease during recessions because of the low demand for credit, reflecting weak economic activity. While the riskiness of default may increase, the overall supply and demand dynamics in the market lead to lower interest rates.

Answer: E 
 Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills because their maturities are further in the future, exposed to greater uncertainty and variability in financial markets and the economy. Longer-term bonds also tend to have more interest rate risk than short-term bonds.

Which of the Following Statements Is CORRECT