Investment Is Generally Sensitive to Changes in the Real Interest

question 9

Multiple Choice

Investment is generally sensitive to changes in the real interest rate because

• A) all three of the components of investment are sensitive to the interest rate.
• B) nonresidential investment falls as the interest rate climbs because the higher rental price of capital inspires substitution into the relatively lessexpensive employment of labor.
• C) residential investment falls as the interest rate climbs because the interest rate is a major component of the rental price of housing.
• D) inventories fall as the interest rate climbs because the interest rate is a major component of the holding cost of inventories.
• E) all of the above.

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Definitions:

Negative Results

Outcomes that are detrimental, opposite of intended, or do not meet the expected or desired objectives.

Positive Results

Beneficial outcomes or achievements that stem from specific actions, measures, or experiments.

Emotional Arousal

A state of heightened physiological and emotional response to stimuli, which can influence behavior and perception.

Self-Efficacy

An individual’s belief about the likelihood of successfully completing a specific task.