Desired Level of the Capital Stock
-Consider the two graphs above.Suppose there is an increase in the real interest rate.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 there is an increase in the real interest rate.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

An increase in the real interest rate raises the cost of borrowing, which typically decreases the desired level of capital stock. Graph B likely depicts the relationship between interest rates and capital stock.