Chapter 5 Assignment 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 12 10 0 2 4 6 810 12 14 6 18 20 CAPITAL (Billions of dollars) Screenshot The market interest rate increased by 2.0%, and the amount of capital borrowed bybillion. Which of the following factors could be responsible for the change in demand shown in the graph? Households began saving a greater percentage of their income. New technological advances opened up more production opportunities for businesses Expected inflation decreased The Federal Reserve (the Fed) decided to relax its monetary policy and expanded the money supply. Does it appear that the economy has strengthened or weakened over the past year? Strengthened Weakened If the inflation rate was 2.40% and the nominal interest rate was 8.80% 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. 5.44% 6.40% 7.36% Screenshot 8.00%