Asked by amirhossein jafarikermanshahi on Jul 04, 2024
Verified
Changes in the equilibrium interest rate will
A) affect both the size of the domestic output and the allocation of capital goods among industries.
B) affect the size of the domestic output but not the allocation of capital goods among industries.
C) affect the allocation of capital goods among industries but not the size of the domestic output.
D) have no perceptible effect on either the size of the domestic output or the allocation of capital goods among industries.
Equilibrium Interest Rate
The interest rate at which the quantity of loanable funds demanded equals the quantity of loanable funds supplied.
Domestic Output
The total value of all goods and services produced within a country's boundaries over a specific time period.
Capital Goods
Physical assets that are used in the production process to manufacture goods and services, including buildings, machinery, and equipment.
- Understand the impact of changes in the equilibrium interest rate on the economy, including output and investment allocation.
Verified Answer
JH
Jerri HirstJul 05, 2024
Final Answer :
A
Explanation :
Changes in the equilibrium interest rate influence both the overall level of economic activity (size of the domestic output) and how capital is distributed among various industries. A higher interest rate can reduce investment spending, leading to a decrease in domestic output, and also alter the cost of borrowing, affecting how capital is allocated across different sectors.
Learning Objectives
- Understand the impact of changes in the equilibrium interest rate on the economy, including output and investment allocation.