Question

An increase in the rate of return on an investment..

1) would most likely increase the supply of loanable funds.

2)would most likely increase the interest rate.

3)would most likely decrease the interest rate.

4)would most likely decrease the supply of loanable funds.

5)would most likely decrease the quantity demanded of loanable funds

Answer 1

This one is actually kind of ambiguous because of the nature of the term "investment." Assuming investment is being used to denote an investment like purchasing a stock, bond, or mutual fund than increase in the return on investments would lead to an increase in supply of loanable funds. however if supply of loanable funds increases, then the interest rate will tend to fall as well.

Are you allowed more than one answer choice?

Answer 2

Just one answer is allowed

Answer 3

In that case I'm going to have to say answer choice 5. It still doesn't make me all warm and fuzzy inside because of the wording, but its my honest best guess.

Answer 4

In my class, they say to go with the first thing that happens.. So if one thing happens which causes another thing to happen, they are just asking for the first one... if that makes sense?

Answer 5

sure that makes a ton of sense! We say the same thing here, may I ask if this is for class or for like an AP test. Some context might help.

I will tell you why I don't like it. The word investment in common every day usage is very different than how economists (esp macro economists) use it. When a normal person says investment they usually mean some form of saving their money whether its buying a stock or putting money into some sort of savings account. If that is how your teacher meant it, one thing would happen (the first answer I gave).

however economists say "investment" when they are referring to business spending. So if a company needs to expand their operations and must spend money to do so, that is called investment. If that is how investment is meant you might think the answer choice would be different.

Okay sorry for the wall of text! Got nerdy for a min.

If we do mean it in an economic "investment" sense, then if the return of businesses investing increases, they will increase their demand for loanable funds, thus increasing Demand for loanable funds. So 2 is my final answer!

Answer 6

I put two before asking, so hopefully we're right! Fingers crossed.. I'm just correcting assignments to bring my grade up a little. My ap exam is in two days

Answer 7

If it helps any, This is for my macroeconomics class

Answer 8

Yea I figured you were prepping for that. I just gave a review for Micro are you taking that one too? I met some students doing both on the same day!

Answer 9

definitely let me know what the answer turns out to be

Answer 10

I decided to only take macro.. I'm thinking about micro next semester, but macro was such a pain that I don't think I want to do it again

Answer 11

I will. I have one more question I am unsure of, but when I get some feedback on that I will be able to tell you if we got it right or wrong

Answer 12

ok well let me know if there is anything else I can help with! Happy studying and good luck on your AP exam. Also just FYI micro is way easier than macro for most students.

Answer 13

I wish I would have known that before choosing macro.. and yes, if you don't mind I have one more question

Answer 14

go for it!

Answer 15

Should I post another question? Or just ask it on here?

Answer 16

which ever makes you happier!