Question+27+(Jennifer+Kim)

27. Which of the following is not correct? A. When a country saves more, it has more capital. B. A supplier of loanable funds borrows money. C. The interest rate adjusts to balance the quantity supplied of and the quantity demanded of loanable funds. D. If Mary buys equipment for her factory, Mary is engaging in capital investment.

A. The accounting identity S=I shows that saving and investment are equal for the economy as a whole. Since the country invests more when a country saves more, it has more capital. B.In the market for loanable funds, those who want to save supply funds and those who want to borrow to invest demand funds. Thus a supplier of loanable funds provides money. C.The interest rate is the price of a loan. Because a high interest rate makes borrowing and saving more expensive, the quantity of loanable funds demanded falls and the quantity of loanable funds supplied rise as the interest rate rises. D. The term capital investment refers to money used by a business to purchase fixed assets, such as land, machinery, or buildings. Therefore, Mary is engaging in capital investment.

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