Other things equal, an increase in the productivity of capital goods will
A) increase the demand for loanable funds and decrease the equilibrium interest rate.
B) increase the demand for loanable funds and increase the equilibrium interest rate.
C) increase the supply of loanable funds and decrease the equilibrium interest rate.
D) increase the supply of loanable funds and increase the equilibrium interest rate.

Question

Quizplus · Accepted Answer

An increase in the productivity of capital goods makes investment more attractive, leading to an increased demand for loanable funds, which in turn raises the equilibrium interest rate.

Other Things Equal, an Increase in the Productivity of Capital