Which of the Below Statements About the Rate of Interest

question 19

Multiple Choice

Which of the below statements about the rate of interest and cost of capital is FALSE?

• A) The maximum that a firm will invest depends on the rate of interest, which is the cost of loans; the firm will invest only as long as the marginal productivity of capital exceeds or equals the rate of interest.
• B) Firms will reject only projects whose gain is not less than their cost of financing.
• C) The firm's demand for borrowing is negatively related to the interest rate; if the rate is high, only limited borrowing and investment make sense.
• D) At a low rate of interest, more projects offer a profit, and the firm wants to borrow more; his negative relationship exists for each and all firms in the economy.

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Definitions:

Circular Reasoning

A logical fallacy in which the argument's conclusion is supported by premises that assume the conclusion's truth.

False Cause

A logical fallacy where a cause is incorrectly identified for an event or phenomenon, leading to incorrect conclusions.

Gambler's Fallacy

The erroneous belief that if a particular event occurs more frequently than normal during a past period, it is less likely to happen in the future (or vice versa).

Utilitarian

A philosophy or ethical theory that advocates for actions that maximize happiness and well-being for the majority.