dolution

 

1. Fill in the blanks to make the following statements correct.

 

a. The economy’s equilibrium interest rate is determined where __________. At an interest rate above the equilibrium interest rate, the quantity of capital supplied __________ quantity of capital demanded, and the result is a(n) __________ in the interest rate.

 

b. At an interest rate below the equilibrium interest rate, the quantity of capital demanded __________ the quantity of capital supplied, and the result is a(n) __________ in the interest rate.

 

c. Beginning in equilibrium in the capital market, an increase in the supply of financial capital leads to a(n)  __________ in the equilibrium interest rate, a(n) __________ borrowing by firms, and a(n) __________ in the equilibrium level of investment and saving.

 

d. Beginning in equilibrium in the capital market, an increase in the demand for financial capital leads to a(n) __________ in the equilibrium interest rate, a(n) __________ desired saving by households, and a(n) __________ in the equilibrium level of investment and saving.

 

e. Technological improvements lead to a(n) __________ in both the demand for and the supply of financial capital. As a result, technological improvements can explain a(n) __________ capital stock and __________ in the interest rate.