Question

The more profitable ________ becomes, the more firms are rewarded for borrowing money to invest in new capital. Thus if capital is perceived as more profitable, the ________ for loanable funds would shift to the ________, driving the equilibrium interest rate ________.

Answer 1

The correct answer is: capital; demand; right; up

Step-by-step explanation:

As the profitability of capital increases, the firms will get more return from investing in capital. So, if the profitability of capital increases, firms will want to invest more in capital. For that they will need funds. Thus, the demand for loanable funds will increase, shifting the curve to right. This increase in demand will further lead to increase in the interest rate.