Why is the demand curve for new capital downward sloping? What ...

[ARLKQ]

Why is the demand curve for new capital downward sloping?
 
  What will be an ideal response?

Question 2

A rapid increase in the price of oil will tend to
 
  A) shift long-run aggregate supply to the left. B) shift aggregate demand to the right.
  C) shift long-run aggregate supply to the right. D) shift short-run aggregate supply to the left.

[nikmaaacs]

Answer to Question 1

The demand for new capital is downward sloping because there is an inverse relationship between the interest rate and the amount of new capital purchased. As the interest rate rises, some projects will become unprofitable (because their expected rate of return is lower than the market interest rate). Thus, as the interest rate rises, the quantity of new capital demanded will fall.

Answer to Question 2

D

[ARLKQ]

Thank you

[nikmaaacs]

No problemo