Question

an interest rate:

A) is essentially the "price of money"

B)Responds to changes in supply and demand for financial assets, including money

C) Is the amount you would be willing to pay or demand to recieve in order to borrow or lend funds, respectively

D)All the above

E) A and B only

Answer 1

Answer is D) All the above.

Interest rate - It is the percentage on the principal charged by the lender and paid by the borrower for the use of the money. Principal is the amount of money which is loaned to the borrower. It is the cost we have to pay for using other people money or if other people use our money. It is the overall amount that has to be paid back over and above the original amount borrowed. It is normally expressed in terms of annual rate. When there is increase in demand for money interest rate will rise and when there is decline in demand for money interest rate will fall. On other hand, an increase in the supply of money will reduce interest rates while a decrease in the supply of money will increase them.

When we deposit money in bank, it pays us interest rate on it. At the same time when we borrow money from bank in the form of loan, we have to pay interest rate to bank.