The diagram below show the market for financial capital assuming that national income is constant at potential GDP,Y*.
FIGURE 25-2
-Refer to Figure 25-2.Suppose national saving is reflected by NS 0 and investment demand is reflected by I0D.If the real interest rate is i1,there is ________ which will drive the interest rate down until it reaches i*.

Question

The diagram below show the market for financial capital assuming that national income is constant at potential GDP,Y*.
  FIGURE 25-2
-Refer to Figure 25-2.Suppose national saving is reflected by NS 0 and investment demand is reflected by I0D.If the real interest rate is i1,there is ________ which will drive the interest rate down until it reaches i*.

Quizplus · Accepted Answer

At the real interest rate i1, the amount of national saving (NS 0) exceeds the amount of investment demand (I0D), indicating an excess supply of financial capital. This excess supply will put downward pressure on the interest rate until it reaches equilibrium at i*.

The Diagram Below Show the Market for Financial Capital Assuming