Changes in the equilibrium interest rate will
A)affect both the size of the domestic output and the allocation of capital goods among industries.
B)affect the size of the domestic output but not the allocation of capital goods among industries.
C)affect the allocation of capital goods among industries but not the size of the domestic output.
D)have no perceptible effect on either the size of the domestic output or the allocation of capital goods among industries.

Question

Quizplus · Accepted Answer

Changes in the equilibrium interest rate influence both the overall level of economic activity (size of the domestic output) and how capital is distributed among various industries. A higher interest rate can reduce investment spending, leading to a decrease in domestic output, and also alter the cost of borrowing, affecting how capital is allocated across different sectors.

Changes in the Equilibrium Interest Rate Will