When the Interest Rate Falls

question 46

Multiple Choice

When the interest rate falls,

• A) the opportunity cost of holding money rises.
• B) people shift out of holding interest-yielding bonds into holding money.
• C) the quantity of money people will hold decreases.
• D) investment spending decreases.

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Definitions:

Average Accounting Return

A financial ratio that compares the average annual net income of an investment to its initial cost to assess its profitability.

Accounting Basis

The method in which income and expenses are recognized in the accounts; common methods include cash basis and accrual basis accounting.

Computation

The process of performing mathematical calculations or processing data using algorithms, often carried out by computers.

Average Accounting Return

A financial ratio that reflects the average net income that a project or investment generates compared to its initial cost or average investment.