The diagram below show the market for financial capital assuming that national income is constant at potential GDP,Y*. FIGURE 25-2
-Refer to Figure 25-2.Suppose national saving is reflected by NS₀ and investment demand is reflected by I₀^D.If the real interest rate is i₁,there is ________ which will drive the interest rate down until it reaches i*.

Question

The diagram below show the market for financial capital assuming that national income is constant at potential GDP,Y*.

FIGURE 25-2
-Refer to Figure 25-2.Suppose national saving is reflected by NS₀ and investment demand is reflected by I₀^D.If the real interest rate is i₁,there is ________ which will drive the interest rate down until it reaches i*.

Quizplus · Accepted Answer

At a real interest rate of i1, the supply of financial capital exceeds the demand, leading to an excess supply, which will drive the interest rate down to equilibrium at i*.

The Diagram Below Show the Market for Financial Capital Assuming