Final answer:
A fall in interest rates leads to a decrease in the cost of borrowing, resulting in a movement downward along a firm's demand curve for capital as the firm is willing to invest in more capital at the lower cost. Therefore correct option is (4)
Step-by-step explanation:
The subject of this question involves understanding how changes in interest rates impact a firm's demand curve for capital. When interest rates fall, it becomes cheaper for firms to borrow money. Consequently, the cost of financing investments in capital (like machinery, buildings, etc.) decreases. This increased affordability tends to encourage firms to borrow more in order to invest in capital, thereby increasing their demand for capital.
According to economic principles, a change in the price of financial capital (in this case, through a change in interest rates) leads to a movement along the demand curve rather than shifting the entire curve. Therefore, a fall in the interest rate results in a movement downward along a firm's demand curve for capital, as the firm is now willing to borrow more capital at a lower cost.
Thus, the correct answer to the student's question is that a fall in the interest rate:
4) results in a movement downward along a firm's demand curve for capital.