Show, using a supply and demand diagram, why we would expect a stronger economy to result in higher interest rates.

What will be an ideal response?


When the economy is stronger, many firms experience a rising demand for their output. Therefore, businesses expect to make more money from investments they make in their factories or offices. If firms expect a higher rate of return from expanding their business, they will be more likely to want to borrow to fund that expansion. This increases the demand for loans, pushing the demand curve to the right and raising the equilibrium interest rate. Refer to Figure 13.1 for an illustration.

 


Economics

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Answer the following statement true (T) or false (F)

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A monopolist maximizes profits by setting the quantity where:

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Indicate whether the statement is true or false

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