Answer to Question #87698 in Microeconomics for Chin

Question

Ongoing technological improvement over the past four decades in Canada has led to continual increases in investment demand, and an increase in the flow of investment, but no clear trend in the interest rate. The reason that we have not seen continual increases in the interest rate over this time period is that

the government intervenes in the capital market.

the annual flow of investment is large enough to offset any change in the interest rate.

the supply of saving curve shifts to the left in response to the increases in investment demand.

natural forces in the economy cause the investment demand curve to shift left to eliminate the excess demand for capital.

technological change has also led to rising productivity and rising incomes and therefore an increase in the supply of saving.

Answer 1

The reason that we have not seen continual increases in the interest rate over this time period is that technological change has also led to rising productivity and rising incomes and therefore an increase in the supply of saving.