Ch. 7: Practice Questions 1. Suppose we started out at the steady state capital

Question

Ch. 7: Practice Questions 1. Suppose we started out at the steady state capital stock in the basic Solow growth model. If there subsequently were an increase in the demand for loanable funds due to more favorable tax treatment of business investment, then we would expect to s current level. current level. its current level. its current level its current level. a. economic growth rates increase in the short run and the nation's capital stock to grow from its b. economic growth rates decrease in the short run and the nation's capital stock to grow from its c. economic growth rates increase in the short run and the nation's capital stock to decrease from d. economic growth rates decrease in the short run and the nation's capital stock to decrease from e economic growth rates stay the same in the short run and the nation's capital stock to grow from

Explanation / Answer

Correct option is (a).

Demand for loanable funds increases when there is an increase in investment demand. As business investment increases, economic growth increases in short run, and capital stock increases over time.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---