A Higher Inflation Rate Changes the User Cost of Capital,which

question 104

Multiple Choice

A higher inflation rate changes the user cost of capital,which ________ the profit-maximizing level of MPK for firms,leading firms to a ________ capital-output ratio,thus ________ net investment.

• A)raises,higher,raising
• B)raises,lower,lowering
• C)lowers,higher,raising
• D)lowers,higher,lowering
• E)lowers,lower,raising

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Definitions:

Bank Capital

The resources a bank’s owners have put into the institution

Total Assets

The sum of all monetary values of everything a company owns, including cash, investments, property, and other resources, reflected on its balance sheet.

Reserve Requirements

The fraction of deposits that banks are required by law to keep on hand or with the central bank as a safeguard against bank runs.

Money Multiplier

A factor that quantifies the amount of money that banks generate with each unit of reserves.