The demand curve for funds is downward sloping because
A)the value of the MRP in terms of today's money shrinks as the interest rate rises.
B)future returns must be discounted more when the interest rate rises.
C)as the interest rate rises, more and more investments become unprofitable.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

All of the above are correct. The demand for funds is inversely related to the interest rate because borrowing becomes more expensive as the interest rate increases, reducing the number of profitable investment projects, decreasing the value of future returns, and reducing the demand for funds.

The Demand Curve for Funds Is Downward Sloping Because