As long as the capital market is competitive, a decrease in saving does not create a gap between the demand for investment funds and their supply."

Question

Quizplus · Accepted Answer

In a competitive capital market, the equilibrium interest rate adjusts to equate the demand for and supply of investment funds. A decrease in saving reduces the supply of funds, but it also lowers the equilibrium interest rate, which stimulates investment demand. As a result, the gap between the demand for and supply of investment funds is eliminated.

As Long as the Capital Market Is Competitive, a Decrease