The Cost of Capital for Investment, If the Price of Capital

question 14

Multiple Choice

The cost of capital for investment, if the price of capital goods rises with the price of other goods and in the absence of taxes, may be summarized as the:

• A) nominal interest rate plus the depreciation rate.
• B) real interest rate plus the depreciation rate.
• C) purchase price of a capital good multiplied by the sum of the nominal interest rate plus the depreciation rate.
• D) purchase price of a capital good multiplied by the sum of the real interest rate plus the depreciation rate.

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Definitions:

GDP

Gross Domestic Product, the total value of all goods and services produced by a country over a specific time period.

Average Price Level

An economic measure that calculates the weighted average of prices across a basket of goods and services, often used to identify inflation or deflation in an economy.

Net Exports

The difference between a country's total value of exports and its total value of imports within a certain timeframe.

Government Purchases

Spending by the government on goods and services, which is part of fiscal policy to influence the nation's economy.