Which of the following will cause the demand for loanable funds to increase?
A)The expected profitability of a project declines.
B)The cost of funds increases.
C)The expected rate of return increases.
D)Households increase their rate of savings.

Question

Quizplus · Accepted Answer

An increase in the expected rate of return on an investment project will cause the demand for loanable funds to increase as firms will require additional funds to finance the project. A higher expected return would make borrowing more attractive as it increases the potential profits. A decline in expected profitability of a project (choice A) would decrease the demand for loanable funds. An increase in the cost of funds (choice B) would decrease the demand for loanable funds. An increase in the rate of household savings (choice D) would increase the supply of loanable funds, rather than the demand.

Which of the Following Will Cause the Demand for Loanable