When an economy is experiencing an economic boom and operating beyond its long-run capacity,
A) strong demand for investment funds will push interest rates upward.
B) weak demand for resources will push the prices of resources downward.
C) weak demand for investment funds will cause the real interest rate to decline.
D) the unemployment rate will be greater than its natural rate.

Question

Quizplus · Accepted Answer

When an economy is experiencing an economic boom and operating beyond its long-run capacity, strong demand for investment funds will push interest rates upward. This happens because investors and businesses are eager to borrow funds for their investments, leading to an increase in demand for those funds. As the supply of funds remains constant, their price, which is the interest rate, will increase.

When an Economy Is Experiencing an Economic Boom and Operating