Why Does Increased Productivity of Capital Shift the Demand for Loanable

question 165

Multiple Choice

Why does increased productivity of capital shift the demand for loanable funds?

• A) More productive capital generates more profits,reducing the need for firms to borrow money.
• B) More productive capital means greater consumption of raw materials,which must be paid for with borrowed money.
• C) More productive capital boosts competition,which leads to greater demand for loans to keep up with rival firms.
• D) More productive capital reduces workers' incentive to work,which leads to greater demand for loans in order to pay workers more.
• E) More productive capital earns more money,which justifies a higher interest rate on money borrowed to buy the capital.

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Milton Friedman

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