The Rate of Interest Is an Important Determinant of Investment

question 3

Multiple Choice

The rate of interest is an important determinant of investment spending,even if a firm does not need to borrow funds.Why is this?

• A)Because the lower the rate of interest,the higher will be the opportunity cost of investment.
• B)Because instead of investing,the firm always has the choice of putting its funds in a savings account which will pay a return.
• C)Because investment is usually more profitable than saving.
• D)Because the higher the rate of interest,the lower inflation rate.

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Definitions:

Physical Capital

The stock of tangible, man-made objects that contribute to production processes, such as machinery, buildings, and tools.

Bulldozers

Heavy machinery equipment used for moving, digging, and clearing large pieces of land.

Entrepreneur

An individual who creates and manages a business venture in order to generate profits, often taking on financial risks.

Profitable Opportunities

Situations or ventures that promise a return on investment or generate financial gain.