2. The market for capital The following graph shows the supply of and demand for

Question

2. The market for capital The following graph shows the supply of and demand for capital in a market over the last year. You can see that the demand for capital has increased over the last year (the demand curve shifted to the right). Place the black X at the equilibrium interest rate and the quantity of capital. INTEREST RATE, r (96) 20 18 16 14 12 10 Equilibrium D2 0 24 6 8 10 12 14 16 18 20 CAPITAL (Billions of dollars) Clear All The market interest rate increased by 2.0%, and the amount of capital borrowed by billion Which of the following factors could be responsible for the change in demand shown in the graph? Households began saving a greater percentage of their income. Expected inflation decreased O The Federal Reserve (the Fed) decided to relax its monetary policy and expanded the money supply New technological advances opened up more production opportunities for businesses.

Explanation / Answer

Ans:

1) increased, $4 billion

The amount of capital borrowed increased by $4 billion.

2) Following factors could be responsible for the change in demand.

New technological advances opened up more production opportunities for businesses.

In this case increase in the opportunities for business from technological advances, increased the demand.

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