Answer the question on the basis of the following information. Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for businesses to invest in new machinery and equipment, so investment
would be zero. But if the interest rate were 16 percent, businesses would find it profitable to invest $10 billion. If the interest rate were 12 percent, $20 billion would be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate. Refer to the information. Which of the following is an accurate verbal statement of the described relationship?
A. There is no regular or dependable relationship between business investment and the
interest rate.
B. The amount of business investment is unaffected by changes in the interest rate.
C. Investment spending by businesses varies inversely with the interest rate.
D. Investment spending by businesses varies directly with the interest rate.
Answer: C
You might also like to view...
The demand for money curve is drawn
A) holding several things constant, including the price level and interest rates. B) with interest rates on the vertical axis and the curve sloping down since lower interest rates mean the "price" of holding money has fallen. C) holding several things constant, including GDP and interest rates. D) with interest rates on the horizontal axis, and the curve sloping up since the "price" of holding money varies directly with the interest rate.
Suppose the United States can produce either 1 ton of potato or 0.5 tons of wheat per worker per year, while Ireland can produce either 3 tons of potatoes or 2 tons of wheat per worker per year. There can be mutual gains from trade if: a. the United States specializes in potatoes because of its comparative advantage in producing potatoes
b. the United States specializes in wheat production because of its absolute advantage in producing wheat. c. the United States specializes in wheat production because of its comparative advantage in producing wheat. d. the United States specializes in potatoes because of its absolute advantage in producing potatoes.
The opportunity cost of holding money:
A. is zero because money is not an economic resource. B. varies inversely with the interest rate. C. varies directly with the interest rate. D. varies inversely with the level of economic activity.
How much do outputs increase when labor and capital increase from 1 to 2 units for the following production function , q = 10L0.5K0.3?
A) 7.4 units B) 7 units C) 8 units D) None of the above.