FIGURE 15-2
-Refer to Figure 15-2.The market for financial capital is initially in equilibrium at E₁.A shift of the aggregate investment demand curve from I₁ to I₂,all other things constant,would

Question

FIGURE 15-2 -Refer to Figure 15-2.The market for financial capital is initially in equilibrium at E<sub>1</sub>.A shift of the aggregate investment demand curve from I<sub>1</sub> to I<sub>2</sub>,all other things constant,would A) shift the supply of saving curve to S<sub>2</sub>. B) change the technology of capital use. C) decrease the equilibrium interest rate. D) increase the equilibrium interest rate. E) reduce the marginal product of capital.

Quizplus · Accepted Answer

A shift of the aggregate investment demand curve to the right indicates an increase in the demand for financial capital, which would lead to an increase in the equilibrium interest rate in order to maintain equilibrium in the market for financial capital. Therefore, the answer is D, increase the equilibrium interest rate. The supply of saving curve and the technology of capital use are not directly affected by the shift in the investment demand curve. The marginal product of capital is not mentioned and hence, irrelevant to the answer.

FIGURE 15-2 -Refer to Figure 15-2.The Market for Financial Capital Is Initially