Desired Level of the Capital Stock
-Consider the two graphs above.Suppose that financial liberalization enables more businesses to access credit markets.This would ________ the desired level of the capital stock,as depicted in graph ________.
A)increase;B
B)increase;A
C)decrease;B
D)decrease;A

Question

Desired Level of the Capital Stock 
-Consider the two graphs above.Suppose that financial liberalization enables more businesses to access credit markets.This would ________ the desired level of the capital stock,as depicted in graph ________.
A)increase;B 
B)increase;A 
C)decrease;B 
D)decrease;A

Quizplus · Accepted Answer

Financial liberalization allows more businesses to access credit markets, which increases investment opportunities and businesses' ability to finance their investment projects. This, in turn, increases their demand for capital, raising the desired level of the capital stock. As shown in graph B, an increase in desired investment shifts the investment demand curve to the right, leading to a higher equilibrium level of capital stock. Therefore, the correct choice is A, increase in desired level of the capital stock, as depicted in graph B.