Question

Which of the following would you expect to decrease the equilibrium interest rate? A. a decrease...

Which of the following would you expect to decrease the equilibrium interest rate?

A. a decrease in the profitability of investment projects firms are considering

B.an increase in the budget deficit

C.a decrease in the percentage of income that households save

D.an investment tax credit given to firms that purchase new capital

E.more than one of the above is correct

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Answer #1

A. decrease in profitability of investment projects ---------------> Demand for funds decreases

Equilibrium interest rate decreases

B.  Increase in budget deficit ----------> Money Supply is lower in comparison to demand

Demand for bonds increases

Equilibrium interest rate increases

C. A decrease in the percentage of income that households save

Money supply increases

Equilibrium interest rate decreases

D. Investment tax credit to firms that purchase new capital

Demand for money increases

Equilibrium interest rate increases

E. A & C

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