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

A rise in demand (option a) and a rise in supply (option c) will both lead to an increase in the quantity of loans made and received in the financial market.

Step-by-step solution

Understanding the concepts

Demand refers to the number of loans borrowers want to take out, whereas supply represents the number of loans lenders are willing to provide. When there is a change in either demand or supply, the market will adjust itself accordingly.

Increase due to rising demand

A rise in demand indicates that borrowers are looking for more loans, which pushes the demand curve to the right. As a result, the quantity of loans that lenders would provide at each interest rate level will increase. As the demand for loans goes up, lenders will accommodate this demand by providing more loans, and thus there will be an increase in the quantity of loans made and received.

Decrease due to falling demand

A fall in demand means fewer borrowers want loans, shifting the demand curve to the left. In this case, lenders will adjust by reducing the quantity of loans they are willing to make. Therefore, a fall in demand will lead to a decrease in the quantity of loans made and received.

Increase due to rising supply

A rise in supply suggests that lenders are willing to provide more loans at each interest rate level and the supply curve shifts to the right. As a result, borrowers will have more opportunities to receive loans, leading to an increase in the quantity of loans made and received.

Decrease due to falling supply

A fall in supply occurs when lenders are willing to provide fewer loans at each interest rate level. This shifts the supply curve to the left. Consequently, borrowers will have less access to loans, resulting in a decrease in the quantity of loans made and received. From the above analysis, we can conclude that: - A rise in demand (option a) will lead to an increase in the quantity of loans made and received. - A rise in supply (option c) will also lead to an increase in the quantity of loans made and received. So, the answer is: a. a rise in demand and c. a rise in supply.