Assume That If the Interest Rate That Businesses Must Pay

question 195

Multiple Choice

Assume that if the interest rate that businesses must pay to borrow funds were 20 percent,it would be unprofitable for businesses to invest in new machinery and equipment so that investment would be zero.But if the interest rate were 16 percent,businesses would find it profitable to invest $10 billion.If the interest rate were 12 percent,$20 billion would be invested.Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate.
-Refer to the above information.Which of the following is an accurate verbal statement of the described relationship?

• A) There is no regular or dependable relationship between business investment and the interest rate.
• B) The amount of business investment is unaffected by changes in the interest rate.
• C) Investment spending by businesses varies inversely with the interest rate.
• D) Investment spending by businesses varies directly with the interest rate.

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