Why do economists predict that investment increases when the real rate of interest falls?
What will be an ideal response?
When the interest rate falls, the present value of a future stream of payments increases. Some projects that might have been considered unprofitable at a high interest rate become profitable, and therefore are undertaken, at a lower interest rate.
You might also like to view...
A contractionary monetary policy leads to higher interest rates that discourage consumer borrowing for big-ticket items, such as houses and cars
a. True b. False Indicate whether the statement is true or false
If policy makers believe that an inflationary boom is about to begin, the Keynesian view indicates that they should
a. increase the budget deficit. b. increase government spending and hold taxes constant. c. decrease government spending and/or raise taxes. d. hold government spending constant and decrease taxes.
The return to any factor of production that is in fixed supply is
A. producer surplus. B. factor surplus. C. pure profit. D. pure rent.
What does a firm's short-run total product curve show and what is its significance?
What will be an ideal response?