How does a decline in the real interest rate cause an increase in investment?
What will be an ideal response?
The real interest rate is the reward for saving and the cost of borrowing. A reduced interest rate will encourage more spending on both consumption and investment. Business firms, in particular, will use available funds to purchase new capital goods from which to generate future income, instead of holding financial assets (e.g., government bonds) that offer a reduced income. The purchase of capital goods will be financed by borrowing, as well, so long as the expected income from use of the capital goods exceeds the (reduced) cost of borrowing.
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The firm's supply curve is its
A) marginal cost curve, at all points above the minimum average variable cost curve. B) marginal cost curve, at all points above the minimum average fixed cost curve. C) marginal cost curve, at all points above the minimum average total cost curve. D) marginal revenue curve, at all points above the minimum average total cost curve.
If the price of toothpaste is represented by equation P = 40 - .5QD, then the corresponding quantity of toothpaste demanded is represented by the equation
A) QD = 80 - 2P. B) QD = 40 - P. C) QD = 20 - .5P. D) QD = -20 + P.
The empirical evidence indicates that compared to economies that are less free, countries with institutions and policies more consistent with economic freedom
a. grow more rapidly, but experience higher poverty rates. b. achieve higher income levels per person but experience higher poverty rates. c. grow more rapidly and achieve larger poverty rate reductions. d. Experience less rapid rates of economic growth and higher overall poverty rates.
Efficiency wages contribute to
a. frictional unemployment and the natural rate of unemployment. b. frictional unemployment but not the natural rate of unemployment. c. structural unemployment and the natural rate of unemployment. d. structural unemployment but not the natural rate of unemployment.