Investment in Capital Goods Only Makes Sense When

question 41

Multiple Choice

Investment in capital goods only makes sense when

• A) the capital goods can be used to increase the future output of consumption goods.
• B) the savings rate of a country is low.
• C) the interest rate is high and people have a positive rate of time preference.
• D) economies are organized along capitalist lines.

---

Definitions:

Risk Premium

The extra return expected for taking on additional risk, over and above the risk-free rate of return.

Firm's Risk

The total risk associated with running a business, including both systematic and unsystematic risks.

Market Risk

The risk of losses in investments due to market variables such as price changes, interest rates, or currency exchange rates.

Discount Rate

The interest rate used to discount future cash flows of a financial instrument to present value.