Suppose Many Businesses Want to Increase Their Stock of Capital

question 48

Multiple Choice

Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it. Which would be the likely result of this event?

• A) Interest rates would increase.
• B) Interest rates would decrease.
• C) The equilibrium quantity of loanable funds would decrease.
• D) The equilibrium quantity of loanable funds would remain unchanged.

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Definitions:

Tax Rate

The percentage at which an individual or corporation is taxed on their income or profits.

Market Value

The existing market price for buying or selling an asset or service.

Accounting Profit

Net income as reported on the financial statements, which includes revenue minus expenses, excluding the cost of capital.

Depreciated Value

The reduced valuation of an asset after accounting for wear and tear, age, or obsolescence.