The demand for capital is
A)directly related to the interest rate.
B)inversely related to the interest rate.
C)unrelated to the interest rate.
D)first falls, and then rises, in relation to the interest rate.

Question

Quizplus · Accepted Answer

The demand for capital is inversely related to the interest rate. When interest rates rise, the cost of borrowing money increases, making it more expensive for businesses to invest in capital. This leads to a decrease in the demand for capital. Conversely, when interest rates fall, the cost of borrowing money decreases, making it cheaper for businesses to invest in capital. This leads to an increase in the demand for capital.

The Demand for Capital Is