Explain Why Lower Interest Rates Can Stimulate Investment by Businesses

question 42

Essay

Explain why lower interest rates can stimulate investment by businesses. Show this on a graph.

Apply sensitivity analysis to assess the impact of variable changes on project NPV.

Identify the importance of operating leverage and its effect on project risk.

Distinguish between fixed costs and variable costs in a business context.

Assess the options to expand, abandon, or suspend a project based on financial analysis.

---

Definitions:

Prefrontal Cortex

The front part of the frontal lobe of the brain, associated with decision making, problem-solving, cognitive behavior, and social behavior.

Amygdala

The amygdala is a brain structure involved in emotion regulation, emotional learning, and the formation of fear-related memories.

Hierarchy of Needs

A theoretical framework in psychology proposed by Abraham Maslow, identifying different levels of human needs, from basic physical requirements to complex psychological growth, which motivate individual behavior.

Arousal Theory

Arousal Theory suggests that individuals are motivated to maintain an optimal level of arousal, with variations in this level driving behaviors towards achieving such balance.