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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Definitions:

General Adaptation Syndrome

An abstract structure illustrating the body's immediate and extended responses to stress, which are categorized into three parts: alarm, resistance, and exhaustion.

Physical Response

The bodily reaction to stimuli, encompassing everything from reflexes to complex responses like the fight or flight reaction.

Stressor

Any event, situation, or stimulus that causes stress or a physiological response to challenge or threat.

Varied Diet

A diet that includes a wide range of different foods to ensure intake of an assortment of nutrients necessary for good health.