The Four Investment Scenarios in Capital Markets

Abstract
The purpose of this assignment is to choose between the four investment scenarios illustrated by Mark Skousen and explain why the chosen scenario would be beneficial in today’s economy. The scenario for this assignment produces a net result of lower interest rates and more capital invested.

The Four Investment Scenarios in Capital Markets
The state of our economy is a topic that politicians, economists and consumers all have a wide range opinion on. Many feel that in the five years since the financial crisis, the economy has begun to mend, while others see the economy as being far worse than before the financial crisis. There are so many unknown variables that drive the economy in an upward or downward motion, however, interest rates are a key force and determining factor in how the economy fares. In addition to interest rates, the supply and demand of capital is also a triggering point that drives the economy. Mark Skousen (2010) discusses four scenarios that affect the economy and of the four scenarios, only one seems to be the most ideal and important situation given the current economic climate.
As stated by Skousen, “Outward shift in supply of capital occurs in situations where new sources of capital enter the market, either from domestic savings (people desire to save more) or foreign investment sources. The greater supply of capital requires banks and other intermediaries to reduce interest rates and encourage more borrowing. Net result: lower interest rates and more capital invested” (2010). What does it mean to have an outward shift in supply of capital? Capital can be tangible items such as equipment, tools, computers or buildings in addition to intangible items such as research and development. During a time when the supply of capital increases, institutions such as banks, credit