If the Investment Curve Is Steep (I

question 124

Multiple Choice

If the investment curve is steep (i.e., investment is less sensitive to changes in the real interest rate) , then an increase in government spending by $100 billion will cause:

• A) a decrease in investments larger than $100 billion.
• B) a decrease in investments equal to $100 billion.
• C) an increase in investments equal to $100 billion.
• D) an increase in investments larger than $100 billion.

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Definitions:

Present Value

The current valuation of upcoming cash flows or a lump sum of money, discounted at an established rate of return.

Sunk Cost

An expense that has already been incurred and cannot be recovered, which should theoretically not influence any future financial decisions or strategies.

Expensed

The act of charging costs to expense accounts, recognizing them in the income statement in the period they were incurred.

Operation

In a business context, operation refers to the day-to-day activities necessary for running a company, which can include production, distribution, and the provision of services.