Question

Which of the following statements about interest rates is false? Interest rates are affected by households' spending decisions The supply of loanable funds is independent of the rate of interest Interest rates typically reflect the risk involved in extending a loan The equilibrium interest rate is determined by the intersection of the supply and demand schedules for loanable funds

Answer 1

Answer:

The supply of loanable funds is independent of the rate of interest Interest rates

Explanation:

Interest rate is the rate earned on deposits or the rate charged on loans.

Interest rate could be real or nominal

Nominal interest rate is real interest rate plus inflation rate

Real interest rate is interest rate that has been adjusted for inflation

equilibrium interest rate is determined by the intersection of the demand for loanable funds curve and the supply of loanable funds curve. if interest rate is above equilibrium level, there would be an excess supply of funds and if interest rate is below equilibrium rate, there would be an excess demand of funds.

the higher the risk of a project, the higher the interest rate investors would demand. Also interest rate tends to be higher with an extension of loan period.