Explain how a decrease in the interest rate will affect autonomous investment
The interest rate is the cost of borrowing investment funds. When the interest rate decreases, then the cost
of borrowing falls, and so firms find it profitable to undertake additional investments. Therefore, we find an
inverse relationship between the interest rate and autonomous investment.
You might also like to view...
What does a budget constraint represent? How do budget constraints explain the trade-offs that consumers face?
What will be an ideal response?
There are five firms in the cresset industry. The market shares of the five firms are 60 percent, 15 percent, 15 percent, 6 percent, and 4 percent. The Herfindahl index is
a. 96 b. 4,086 c. 10,000 d. 4,102 e. 4,100
Most economists agree that modest inflation is desirable over zero inflation because:
A. it helps firms to more easily adjust real wages. B. it allows a margin of error for those deciding on the money supply. C. it allows the Fed to more easily engage in expansionary monetary policy. D. All of these statements are true.
Marginal physical product of labor measures the
a. quantity of output produced by hiring workers b. change in output generated by hiring an additional worker c. change in revenue generated by hiring an additional worker d. change in cost generated by hiring one additional worker e. change in labor productivity generated by a change in capital employed