15.4 The Supply of Capital LO 4
The economy’s supply of capital comes from households’ flow of
desired saving.
An increase in the interest rate increases the opportunity cost of
current spending and thus leads households to increase their desired
saving. This is a movement upward along the economy’s supply of
saving curve.
An increase in aggregate income—either through population growth
or growth in per capita income—leads to an increase in total
household saving at any given interest rate. The result is a rightward
shift in the economy’s supply of saving curve.