In this chapter, we developed a theory of the market for financial capital. Using that theory, fill in the blanks to make the following statements correct.

a. An increase in the real interest rate leads to a(n) ___________

in the amount of national saving as households reduce their ____________ .

b. An increase in the interest rate leads firms to __________ their amount of desired investment.

c. In the long run, with output equal to potential, equilibrium in the market for financial capital determines the interest rate as well as the amount of ________ and ________ in the economy.

d. Following a shift in either the supply of national saving or the demand for investment, there will be a change in both the equilibrium __________ and the amount of ________ in the economy.

e. An increase in the amount of the economy’s resources devoted to _______ leads to an increase in the growth rate of _________ .