Stock prices will increase, ceteris paribus, when the prevailing interest rate increases.
Answer the following statement true (T) or false (F)
False
Higher interest rates will cause the price of a stock to decrease for two reasons. First, higher interest rates will cause the costs of borrowed funds for the corporation to go up, which will dampen future profits. This will cause existing shareholders to sell their stock-an increase in supply. Second, interest rates are the opportunity cost of investing in the stock market. In other words, investors will give up higher interest rates on their savings, and so the demand for stocks will drop. An increase in supply and a decrease in demand both cause prices to go down.
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In an economy where aggregate spending is given by Y = 5,500 + 0.6Y - 20,000r, the interest rate is currently 5 percent (0.05). If potential output equals 11,750, the central bank must ________ the interest rate to close the ________ gap.
A. raise; recessionary B. reduce; recessionary C. raise; expansionary D. reduce; expansionary
The present value of a payment K that is schedule to be received t periods from now is
A) K - i / (1 + i)t. B) K / (1 - i)k. C) K / (1 + i)t. D) K / (K + i)t.
The "principle of rival consumption" applies to which of the following?
A. national defense B. the exclusion principle C. a private good D. the free-rider problem
Assume that a perfectly competitive firm faces a fixed wage rate of $4 and a constant per-unit cost of capital of $2. If the marginal product of labor and capital are 16 and 6, respectively, then to maximize profits the firm should
A. decrease all inputs proportionately. B. use relatively less capital. C. use relatively more capital. D. increase all inputs proportionately.