Consider the Flow of Investment and Saving in a Small

question 16

Multiple Choice

Consider the flow of investment and saving in a small economy.Suppose the equilibrium interest rate is 2.5% and the equilibrium level of saving and investment is $4 billion.Now suppose,all else remaining equal,that there is sustained population growth over several years.What will be the effect in the capital market?

• A)An increase in the flow of investment and saving and a decrease in the equilibrium interest rate.
• B)An indeterminate effect on the flow of investment and saving and an increase in the equilibrium interest rate.
• C)An increase in the flow of investment and saving and an increase in the equilibrium interest rate.
• D)An increase in the flow of investment and saving and an indeterminate effect on the equilibrium interest rate.
• E)An indeterminate effect on the flow of investment and saving and a decrease in the equilibrium interest rate.

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Definitions:

Qualitative Analysis

The examination of non-quantitative aspects of a company or its market, such as management quality or sector conditions.

Market Rate of Interest

The prevailing rate of interest observed in the marketplace for securities of similar risk and maturity profiles.

Bond Selling For

Bond Selling For indicates the current market price at which a bond is being traded, which can be at a discount, at par, or at a premium relative to its face value.

Coupon

A payment to the holder of a bond made periodically until the bond matures, typically representing interest on the bond.