Consider the Flow of Investment and Saving in a Small

question 97

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 an increase in per capita income.What will be the effect in the capital market?

• A)the interest rate will fall below 2.5% and the quantity of investment demanded will increase
• B)the interest rate will rise above 2.5% and the quantity of saving supplied will increase
• C)the interest rate will rise above 2.5% and the quantity of investment demanded will decrease
• D)an indeterminate effect on the interest rate and an increase in the equilibrium level of investment and saving
• E)the interest rate will fall below 2.5% and the quantity of saving supplied will increase

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