Economy question

CFA Level I
#1

If investors’ expected future incomes increase and the demand fot financial capital increases, other things equal

A. the equilibrium interest rate will rise

B. the equilibrium interest rate will fall

C. these two factors wil have opposing effects on the equilibrium interest rate.

Correct answer :A

Why A is correct instead of B ?

Thanks

#2

When demand increases for any material,the price will go up.Therefore,when the demand of financial capital increases,you have to pay more to get/buy it.That’s why the interest rate will soar when the demand for financial capital increases.

Is it helpful?

#3

When expectation of future income increases , demand increases and demand for financial capital (borrowing for spending) will increase…this i turn will lead to a rise in inflation and therefore interest rates will have to increase to curb it.