Question

When interest rates in a given economy are reduced, it causes firms to employ __________ capital goods. In terms of the production function (graphed with labor on the horizontal axis and Real GDP on the vertical axis), this then causes _________________ .

Answer 1

Answer:

More; A movement up along a given production function

Explanation:

A reduction in the interest rate of a given economy causes firms to increase their borrowing in order to make investement in projects that are more profitable. This cause firms to employ More capital goods.

Also, once firms increase capital goods, this increase in capital causes the Economoy's Gross Domestic Product (GDP) to rise along the production function.

It is however, important to note that a rise in the GDP along the production function does not lead to a shift in the production function. A shift in production function occurs when their is either improvement in labour skills or technological access or where there is an improvement in both factors.