Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it. Which would be the likely result of this event?

Question

Quizplus · Accepted Answer

When many businesses decide to borrow funds to increase their stock of capital goods, the demand for loanable funds increases. According to the law of supply and demand, an increase in demand, with supply remaining constant, leads to a higher price. In the loanable funds market, the "price" is the interest rate. Therefore, interest rates would likely increase.

Suppose Many Businesses Want to Increase Their Stock of Capital