The Reduction in Investment Spending in the Long Run Results

question 32

Multiple Choice

The reduction in investment spending in the long run results from an increase in government expenditures because:

• A) the tax rate increases.
• B) real interest rates increase.
• C) real interest rates decrease.
• D) nominal interest rates decrease.

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Definitions:

Compound Interest

The process of calculating interest not only on the principal amount but also on accumulated interest from earlier time frames of a deposit or loan.

Capital Investment

Funds spent by a firm to acquire or upgrade physical assets such as property, industrial buildings, or equipment.

Net Cash Flows

The difference between a company's cash inflows and cash outflows within a specific period.

Net Present Value

A method of evaluating investment opportunities that calculates the difference between the present value of cash inflows and outflows over a period of time.