Which of the following is true about the market for capital?
A) The demand for capital curve is upward sloping and the supply of capital curve is downward sloping.
B) The supply of capital is perfectly elastic.
C) The supply of capital curve is upward sloping and the demand for capital curve is downward sloping.
D) The supply of capital curve is vertical and the demand for capital curve is downward sloping.
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

The market for capital works similarly to other markets. The supply of capital comes from savers and investors, and the demand for capital comes from borrowers. As the interest rate increases, more savers and investors are willing to supply their money, so the supply for capital is upward sloping. On the other hand, as the interest rate decreases, more individuals and businesses are willing to invest and borrow, so the demand for capital is downward sloping. Hence, the correct answer is C where the supply of capital curve is upward sloping and the demand for capital curve is downward sloping.

Which of the Following Is True About the Market for Capital