5. The market for capital The following graph shows the supply of and demand for capital in a market over the last year. You can see that the demand for capital has increased over the last year (the demand curve shifted to the right). ? Supply 20 18 D2 16 D1 14 12 INTEREST RATE, (Percent) 10 2 0 1 0 2 4 16 18 20 8 10 12 14 CAPITAL (Billions of dollars) The market interest rate increased by 2.0%, and the amount of capital borrowed by billion. Which of the following factors could be responsible for the change in demand shown in the graph? O Expected inflation decreased. The Federal Reserve (the Fed) decided to relax its monetary policy and expanded the money supply. New technological advances opened up more production opportunities for businesses. Households began saving a greater percentage of their income. Does it appear that the economy has strengthened or weakened over the past year? O Strengthened O Weakened If the inflation rate was 2.00% and the nominal interest rate was 9.00% over the last year, what was the real rate of interest over the last year? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. O 8.05% O 8.75% O 5.95% O 7.00% 5. The market for capital The following graph shows the supply of and demand for capital in a market over the last year. You can see that the demand for capital has increased over the last year (the demand curve shifted to the right). ? Supply 20 18 D2 16 D1 14 12 INTEREST RATE, (Percent) 10 2 0 1 0 2 4 16 18 20 8 10 12 14 CAPITAL (Billions of dollars) The market interest rate increased by 2.0%, and the amount of capital borrowed by billion. Which of the following factors could be responsible for the change in demand shown in the graph? O Expected inflation decreased. The Federal Reserve (the Fed) decided to relax its monetary policy and expanded the money supply. New technological advances opened up more production opportunities for businesses. Households began saving a greater percentage of their income. Does it appear that the economy has strengthened or weakened over the past year? O Strengthened O Weakened If the inflation rate was 2.00% and the nominal interest rate was 9.00% over the last year, what was the real rate of interest over the last year? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. O 8.05% O 8.75% O 5.95% O 7.00%