Assume That If the Interest Rate That Businesses Must Pay

question 226

Multiple Choice

Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for businesses to invest in new machinery and equipment so that investment would be zero.But if the interest rate were 16 percent, businesses would find it profitable to invest $10 billion.If the interest rate were 12 percent, $20 billion would be invested.Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate.Refer to the above information.Which of the following is an accurate verbal statement of the described relationship?

• A)There is no regular or dependable relationship between business investment and the interest rate.
• B)The amount of business investment is unaffected by changes in the interest rate.
• C)Investment spending by businesses varies inversely with the interest rate.
• D)Investment spending by businesses varies directly with the interest rate.

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Definitions:

Demand Curve

An illustrative depiction that demonstrates the connection between a product's price and the amount consumers are willing to purchase at various price levels.

Elastic

Describes a situation in which the demand or supply for a good or service significantly changes in response to changes in price.

Consumer Surplus

The discrepancy between the total sum consumers are prepared and capable of spending on a product or service and the actual total sum they end up paying.

Price Ceiling

A price ceiling is a government-imposed limit on how high a price can be charged for a product, service, or resource, usually set below the market equilibrium price to make goods more affordable.