Essay
The market for capital is in equilibrium at an interest rate of 3% and a quantity of $10 million.
a. Using demand and supply curves, illustrate the market equilibrium.
b. Suppose that households become more frugal and decide to spend less and save more. Using supply and demand curves, illustrate this effect in the market for capital.
c. Suppose that businesses become more optimistic about future demand and start to invest heavily in capital. Using supply and demand curves, illustrate this effect in the market for capital assuming the equilibrium in part (a) is the starting point.
Correct Answer:
Verified
Correct Answer:
Verified
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