Economics · Capital and Interest
Consider the following statements regarding the demand for savings and investment: Statement 1: An increase in the market interest rate generally leads to a decrease in the demand for investment as it raises the cost of borrowing. Statement 2: The demand for capital is influenced by both the expected return on investment and the prevailing market interest rate. Statement 3: When the marginal productivity of capital falls below the interest rate paid, rational investors will still increase borrowing to expand physical assets. Which of these statements are correct?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Only statement 2
- 2Statements 1, 2, and 3
- 3Only statements 1 and 2✓
- 4Only statement 1
Correct answer
Only statements 1 and 2
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