Sia
Question
Statistics
Posted 4 months ago
In response to a particularly exciting speech by the president of Hamsterville, business optimism is at an all time high, and the demand for capital has increased.
What will be the impact of this increase in the demand for capital on the market for loanable funds and the stock of capital in Hamsterville?
Choose 1 answer:
A Demand and supply of loanable funds will increase; stock of capital will not be affected.
(B) Supply of loanable funds will increase; stock of capital will not be affected.
(C) Demand for loanable funds will increase; stock of capital will increase.
(D) Supply of loanable funds will decrease; stock of capital will increase.
(E) Demand for loanable funds will increase; stock of capital will decrease.
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Answer from Sia
Posted 4 months ago
Solution by Steps
step 1
Identify the economic context: An increase in the demand for capital due to business optimism
step 2
Understand the relationship between demand for capital and loanable funds: Higher demand for capital typically leads to higher demand for loanable funds
step 3
Analyze the impact on the stock of capital: Increased demand for capital usually results in an increase in the stock of capital as businesses invest more
step 4
Evaluate the given options:
- Option A: Incorrect, as both demand and supply of loanable funds increasing simultaneously is unlikely without external factors.
- Option B: Incorrect, as only supply increasing without demand is not logical in this context.
- Option C: Correct, as increased demand for loanable funds and increased stock of capital align with economic principles.
- Option D: Incorrect, as supply decreasing is not consistent with increased demand.
- Option E: Incorrect, as increased demand for loanable funds would not decrease the stock of capital
C
Key Concept
Demand for loanable funds and stock of capital
Explanation
An increase in the demand for capital typically leads to an increase in the demand for loanable funds and subsequently an increase in the stock of capital as businesses invest more.
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