Ceteris paribus, a decrease in the demand for loans
A) drives the interest rate down.
B) drives the interest rate up.
C) might not have any effect on interest rates.
D) results from an increase in business prospects and a decrease in the level of savings.

Question

Quizplus · Accepted Answer

A decrease in the demand for loans means less borrowing is happening. According to the law of supply and demand, if demand decreases (with supply remaining constant), the price for the borrowed money, which is the interest rate, will decrease.

Ceteris Paribus, a Decrease in the Demand for Loans