Other Things Equal, an Increase in the Productivity of Capital

question 90

Multiple Choice

Other things equal, an increase in the productivity of capital goods will

• A)increase the demand for loanable funds and decrease the equilibrium interest rate.
• B)increase the demand for loanable funds and increase the equilibrium interest rate.
• C)increase the supply of loanable funds and decrease the equilibrium interest rate.
• D)increase the supply of loanable funds and increase the equilibrium interest rate.

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Definitions:

Real Return Bonds

Bonds issued by the federal government that offer inflation protection to investors.

Income Bonds

These are a type of debt security where interest payments depend on the issuer's earnings, meaning if the issuer's earnings are insufficient, the bondholders may not receive interest payments.

Regular Bonds

Standard debt securities issued to investors that pay fixed or floating interest rates until maturity, where the principal amount is then repaid.

Bankrupt

A legal status of a person or entity that cannot repay debts to creditors and seeks the relief of such debts through court proceedings.