At some level of lending, the interest rate at which lenders are willing to supply loans to an emerging market economy will begin to increase as the:
A) economy's total loans increase.
B) economy's GDP increases.
C) economy's default risk decreases.
D) volatility of the economy's GDP decreases.

Question

Quizplus · Accepted Answer

As the total amount of loans to an emerging market economy increases, lenders perceive a higher risk of default due to the increased debt burden on the economy. This leads to an increase in the interest rate to compensate for the higher perceived risk.

At Some Level of Lending, the Interest Rate at Which