Question

If the return on capital is 12% and the price for loanable funds is 14%, then:____.

a. currently businesses will not borrow loanable funds to invest in capital goods.
b. the return on capital will fall as the supply of capital decreases over time, and simultaneously, the price for loanable funds will increase as savers make even more savings available.
c. eventually the return on capital will decrease to the point where businesses will find it profitable to borrow loanable funds

Answer 1

If the return on capital is 12% and the price for loanable funds is 14%, then:____.

a. currently businesses will not borrow loanable funds to invest in capital goods.

Step-by-step explanation:

This simply means that the costs of borrowing exceed the returns. This makes borrowing and investment unattractive to businesses. The resulting effect on the economy will be disastrous. Many economic variables will be affected negatively, especially output and employment. At such times, the central bank needs to intervene with monetary policies to move the economy out of recession.