Question:

All other thing being equal, an increase in the demand for capital will cause?

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a reduction in the supply of capital.

a negative externality in the capital market.

an increase in interest rates.

a run on banks.

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  1. ♦an increase in interest rates.

    Increased demand for capital will mean rightward shift of demand for investments and with fixed capital supply it will lead to higher equilibrium price (interest) for capital.

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