A fall in the real interest rate is most likely to increase business investment because it
Correct answer: A. Reduces the cost of borrowing for capital projects
- A. Reduces the cost of borrowing for capital projects
- B. Raises the cost of purchasing machinery
- C. Reduces expected returns on productive assets
- D. Makes household saving legally compulsory
Explanation
The real interest rate represents the inflation-adjusted cost of borrowing. When it falls, more investment projects become profitable because their financing cost is lower.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
Practise Macroeconomics
1,499 free Macroeconomics MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Economics questions like this
Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Macroeconomics questions
In the short run, a rise in the overall price level generally causes real output supplied to
Crowding out occurs when expansionary fiscal policy causes
Which example is an automatic stabilizer in a modern economy?
A domestic company buying and constructing a factory in another country is recorded primarily as
If a country's currency depreciates, other factors remaining constant, its exports usually become
The short-run Phillips curve traditionally shows an inverse relationship between