The Diagram Below Shows the Market for Financial Capital in the Long

question 12

Multiple Choice

The diagram below shows the market for financial capital in the long run when real GDP is equal to potential output,Y*. FIGURE 25-3
-Refer to Figure 25-3.Suppose the interest rate in this market for financial capital is 2%.Which of the following statements correctly describes the adjustment that will occur in this market?

• A)The excess supply of saving will push up the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving.
• B)The excess demand for investment will push up the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving.
• C)The excess supply of saving will push down the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving.
• D)The excess demand for investment will push down the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving.
• E)The excess demand for investment will push up the real interest rate,which will increase the quantity demanded of investment and decrease the quantity supplied of saving.

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