Demand and Supply in Factor Markets - LOS f ～ style, black, class

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1．Which of these factors is least likely to increase the supply of capital?

A)  A higher market rate of interest.

B)  Increases in individuals’ current incomes.

C)  Decreases in individuals’ expected future incomes.

D)  A larger number of attractive investment opportunities.

2．Which of the following statements about individuals’ savings behavior is most accurate?

A)  Expected increases in income encourage individuals to save less.

B)  Higher interest rates make individuals less willing to trade present consumption for future consumption.

C)  Individuals tend to draw down their savings when they anticipate a decline in their incomes.

D)  Decreases in savings accompany increases in individuals’ current incomes.

3．All other things equal, which of the following would least likely lead to an increase in the equilibrium rate of interest?

A)  Increase in demand for capital with no change in supply of capital.

B)  Decrease in supply of capital with no change in demand for capital.

C)  Decrease in supply of capital and an increase in demand for capital.

D)  Increase in supply of capital with no change in demand for capital.

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答案和详解如下：

1．Which of these factors is least likely to increase the supply of capital?

A)  A higher market rate of interest.

B)  Increases in individuals’ current incomes.

C)  Decreases in individuals’ expected future incomes.

D)  A larger number of attractive investment opportunities.

The correct answer was D)

The supply of capital is the savings of individuals. The three primary factors that affect savings behavior are interest rates, current incomes, and expected incomes. The number of attractive investment opportunities (i.e., positive net present value projects) will influence the demand for capital.

2．Which of the following statements about individuals’ savings behavior is most accurate?

A)  Expected increases in income encourage individuals to save less.

B)  Higher interest rates make individuals less willing to trade present consumption for future consumption.

C)  Individuals tend to draw down their savings when they anticipate a decline in their incomes.

D)  Decreases in savings accompany increases in individuals’ current incomes.

The correct answer was A)

Individuals generally save less (and borrow more) when they expect to earn higher incomes in the future. Conversely, they increase their savings when they expect lower future incomes, such as when workers approach retirement. Higher interest rates encourage savings, or trading present consumption for future consumption. Increases in current incomes encourage savings, while decreases in current incomes discourage savings.

3．All other things equal, which of the following would least likely lead to an increase in the equilibrium rate of interest?

A)  Increase in demand for capital with no change in supply of capital.

B)  Decrease in supply of capital with no change in demand for capital.

C)  Decrease in supply of capital and an increase in demand for capital.

D)  Increase in supply of capital with no change in demand for capital.

The correct answer was D)

An increase in the supply of capital, assuming no change in the demand for capital, will cause the equilibrium interest rate to fall.