Question

In the financial market, what causes a movement along the demand curve? What causes a shift in the demand

curve?

Short answer

Changes in the interest rate

Step-by-step solution

Step 1

A demand curve is a representation of how the product price relates to the amount of demanded product. The prices are usually written on the vertical axis which is always on the left while the demanded quantity on the horizontal axis. The demand curve shifts when other demand determinants change as the price remains constant.

Step 2

Changes in the interest rate (i.e., the price of financial capital) cause a movement along the demand curve. A change in anything else (non-price variable) that affects demand for financial capital (e.g., changes in confidence about the future, changes in needs for borrowing) would shift the demand curve.