If the Real Interest Rate in the Economy Is I

question 65

Multiple Choice

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then, other things equal,

• A) more investment will be forthcoming when i exceeds r.
• B) less investment will be forthcoming when r rises.
• C) r will fall as more investment is undertaken.
• D) r will exceed i at all possible levels of investment.

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Definitions:

Comparative Advantage

The capability of a person, business, or nation to generate a product or offer a service with a lesser opportunity cost compared to its rivals.

Absolute Advantage

The ability of an individual, company, or country to produce more of a good or service with the same amount of resources as others.

Production Possibilities

Production possibilities involve the various combinations of different goods or services that can be produced in a given economy with available resources and technology, illustrated by the production possibilities frontier.

Production Possibilities Curve

A graphical representation that shows the various combinations of two products that an economy can produce using all its resources efficiently.