Question

When an economy is experiencing an economic boom and operating beyond its long-run capacity, Group of answer choices strong demand for investment funds will push interest rates upward. weak demand for resources will push the prices of resources downward. weak demand for investment funds will cause the real interest rate to decline. the unemployment rate will be greater than its natural rate.

Answer 1

Answer:

strong demand for investment funds will push interest rates upward.

Explanation:

Since the economy is booming, the demand for investment funds will be very large, even if the economy is not operating beyond its long run capacity. Just the mere fact that the economy is growing will result in an increase in the demand for money, and the price of money is interest. If the quantity demanded increases, then the price of money (interest rates) will also increase. This affects both the demand for investment funds and credit for consumption.

On the other hand, if the economy is declining, the demand for money decreases, resulting in lower interest rates.