Question

Which of the following changes in the financial market will lead to an increase in the quantity of loans made and received: a. a rise in demand b. a fall in demand c. a rise in supply d. a fall in supply

Short answer

The correct option is A. a rise in demand C. a rise in supply

Step-by-step solution

Step.1 Introduction 

The financial market refers to the market structure where the exchange of funds takes place. The equilibrium quantity of funds and the equilibrium interest rates are determined by the demand & supply of these funds.

Step.2 Explanation

An increase in demand would cause the demand curve to move to the right as a result. The equilibrium quantity would increase, and the equilibrium interest rate would also increase. On the other hand, a decrease in demand would cause the demand curve to move to the left, thus causing the equilibrium quantity and equilibrium interest rate to decrease.

An increase in supply would cause a rightward shift in the supply curve, increasing the equilibrium quantity and decreasing the equilibrium interest rate. A decrease in supply would cause a leftward shift in the supply curve, decreasing the equilibrium quantity and increasing the equilibrium interest rate.