An increase in perceived business opportunities will generally cause a _____ the demand curve for loanable funds.

Question

BlackTom AI · Accepted Answer

Question restatement: The scenario describes an increase in perceived business opportunities and asks how this affects the demand curve for loanable funds.
Option a: Leftward movement along the demand curve. A movement along the curve would imply a change in the quantity demanded due to a change in the interest rate, holding the curve itself constant. However, an increase in perceived business opportunities typically changes the entire demand for funds, not just the quantity at a given rate, so a along-curve movement is insufficient to describe the shift.
Option b: Leftward shift of the demand curve. A leftward shift would mean a decrease in the demand for loanable funds at every interest rate, which contradicts the idea that higher opportunities encourage more investment and borrowing. Thus this option misstates the direction of the effect.
Option c: Rightward movement along the demand curve. Similar to option a, this reflects a higher quantity demanded due to a change in the interest rate, not a change in overall demand stemming from changes in opportunities. Since the question references a broader change in opportunities, a mere along-curve movement is inadequate.
Option d: Rightward shift of the demand curve. This is consistent with the standard interpretation: when there are more perceived profitable investment opportunities, firms demand more loanable funds to finance those projects, increasing overall demand and shifting the demand curve to the right. The shift indicates that at every real interest rate, lenders would face higher demand for funds due to expanded investment opportunities.
So, option d represents the correct characterization of the effect: an increase in perceived business opportunities leads to a rightward shift of the demand curve for loanable funds.
Additional notes: Distinctions here hinge on the difference between a movement along a curve (which changes quantity demanded due to the rate) and a shift of the curve (which changes demand at all rates due to non-price factors such as opportunities). In this context, opportunities are a non-price determinant that expands borrowing needs, hence a rightward shift of the demand curve is the appropriate description.

An increase in perceived business opportunities will generally cause a _____ the demand curve for loanable funds.

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