When markets are more liquid, interest rates are _______ and the level of investment is _______.
A) lower; higher
B) lower; lower
C) higher; higher
D) higher; lower

Question

Quizplus · Accepted Answer

When markets are more liquid, it means that there is a higher amount of buying and selling activity, and it is easier for investors to find buyers or sellers for their assets. This increased ease of transaction reduces the risk of holding assets, making them more desirable and lowering their required rates of return, which in turn lowers interest rates. Additionally, since investment is more desirable and accessible, the level of investment is higher.

When Markets Are More Liquid, Interest Rates Are _______ and the Level