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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Why does the price for loanable funds tend to equal the return on capital goods?

To determine

Explain the equality between the price for loanable funds and return on capital goods.

Explanation

The price of loanable funds and the return on capital goods always have a tendency to be equal. This is because of the influence of monetary incentive. Assume that the return on capital is 12 percent and the loanable fund price is 10 percent. Here, the return on capital is higher than the return on loanable funds. Thus, a person will purchase loanable funds at 10 percent and invest in the capital to earn 12% return...

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