Explain the ways in which the government can persuade private businesses to invest more in order to speed up the process of capital formation?
Real interest rates: The amount that businesses invest depends on the real interest rate they pay to borrow funds. The lower the real rate of interest, the more investment there will be.
Tax provisions: The government also can influence investment spending by altering provisions of the tax code.
Technical change: If the government can figure out how to spur technological progress, those same policies will probably boost investment.
Growth of demand: Rapid growth itself can induce businesses to invest more. High levels of sales and expectations of rapid economic growth create an atmosphere conducive to investment.
Political stability and property rights: Business executives contemplating a long-term investment want assurances that their property will not be taken from them for capricious or political reasons.
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An example of foreign direct investment is the
A) domestic acquisition of less than 10 percent of a foreign company. B) foreign purchase of more than 10 percent of stock in a domestic company. C) purchase of livestock from abroad. D) sale of insurance in a foreign nation.
If marginal product increases with an increase in the variable input, the marginal cost must also increase as more units of the input are hired
a. True b. False Indicate whether the statement is true or false
Inflation reduces the multiplier effect by reducing consumers' wealth and purchasing power
a. True b. False Indicate whether the statement is true or false
Mr. Capps recently built a dental floss factory in Montana. It cost $500,000 and is expected to last ten years. The plant can only be used to produce dental floss and will have no scrap value. When a recession occurs, the yearly revenue from the plant declines to $35,000 . compared to costs of $25,000 just for the variable resources required to produce the current rate of output. Mr. Capps should
a. shut down since he is experiencing economic losses (in other words, he will not get his $500,000 back). b. reduce the price of dental floss if his demand is inelastic in order to increase his revenue. c. raise the price of dental floss if his demand is elastic in order to increase his revenue. d. continue to operate since he is covering his variable costs and the cost of the plant is a sunk cost.