If net investment is positive, then:
A)the rate of interest (and the capital market)could still be in long-run equilibrium.
B)it is impossible to say whether the capital stock is growing, unless gross investment is also known.
C)the capital stock is increasing, which might cause the interest rate to fall in the long run if the greater capital is applied to fixed amounts of other factors.
D)the capital stock is increasing, causing the demand curve for capital to shift downward in the long run and the interest rate to fall.
E)this could be a long-run equilibrium position, provided net saving is zero.

Question

Quizplus · Accepted Answer

A positive net investment means that the economy is investing more than it is depreciating, which leads to an increase in the capital stock. In the long run, this increase in capital can lead to a decrease in the interest rate if there is a fixed amount of other factors (e.g. labor). This is because the increased capital makes it easier to produce goods and services, which in turn reduces the return on each unit of capital invested. This reduction in return leads to a decrease in the demand for capital, causing the interest rate to fall. However, it is not possible to determine whether the capital stock is actually growing without knowing gross investment as well.

If Net Investment Is Positive, Then