Use the concept of present value to explain the inverse relationship between the interest rate and the amount of investment a firm undertakes
What will be an ideal response?
As the interest rate falls, the present value of the income stream from an investment rises. Firms should undertake an investment project only if the present value of the income stream is higher than the full cost of the investment. Thus, the lower the interest rate, the greater the likelihood that this will be true. As the interest rate falls, projects that were not previously profitable will become profitable, and the firm's level of investment will rise.
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One way to solve the problems caused by information asymmetry is:
A. proofing. B. surfing. C. signaling. D. All of these are solutions to information asymmetry.
Who is hurt and who benefits from inflation? Why?
If products A and B are complements and the price of B decreases, the:
A. demand for A will decline and the demand for B will increase. B. demand for A will increase and the amount of B demanded will increase. C. demand curves for both A and B will shift to the left. D. amount of B purchased will increase, but the demand curve for A will not shift.
The top 5 percent of health care users in the United States account for
A. almost 90 percent of all health costs. B. over 50 percent of all health costs. C. over 75 percent of all health costs. D. 10 percent of all health costs.