If the Return on Capital Is 12 Percent and the Price

question 91

Multiple Choice

If the return on capital is 12 percent and the price for loanable funds is 9 percent, then

• A)firms will not be willing to borrow loanable funds until either the return on capital decreases or the price for loanable funds increases, because the market for loanable funds is not in equilibrium and businesses will be wary of further investment.
• B)firms will realize that if they borrow loanable funds and invest in capital goods, it will cause the return on capital to decrease, so they won't want to borrow the funds.
• C)savers will realize that they can earn more if they invest their savings in capital, so they will withdraw their savings and supply them to firms at 14 percent.
• D)firms will borrow in the loanable funds market and invest in capital.

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Definitions:

Production Technology

The quantitative relationship between inputs and outputs.

Input Demand

Input demand refers to the quantity of goods and services a firm requires to produce its own products, often influenced by the price of these inputs and the firm's level of output.

Normal Return

The typical profit that is expected from a standard investment or business activity, accounting for the cost of capital.

Computer Software

Programs and operating information used by a computer to perform specific tasks.