Consider the Flow of Investment and Saving in a Small

Multiple Choice

Consider the flow of investment and saving in a small economy.Suppose the equilibrium interest rate is 2.5% and the equilibrium level of saving and investment is $4 billion.Now suppose,all else remaining equal,that there is an increase in per capita income.What will be the effect in the capital market?

A) the interest rate will fall below 2.5% and the quantity of investment demanded will increase
B) the interest rate will rise above 2.5% and the quantity of saving supplied will increase
C) the interest rate will rise above 2.5% and the quantity of investment demanded will decrease
D) an indeterminate effect on the interest rate and an increase in the equilibrium level of investment and saving
E) the interest rate will fall below 2.5% and the quantity of saving supplied will increase