Interest Rates Affect Investment Spending And,as a Result,the Steady-State Capital

question 53

Multiple Choice

Interest rates affect investment spending and,as a result,the steady-state capital stock.I: An increase in interest rates lowers the steady-state capital stock.II: With a Cobb-Douglas production function,the higher is the capital-share parameter,the bigger is the change in the steady-state capital stock.

• A) I is true; II is not.
• B) II is true; I is not.
• C) Both I and II are true.
• D) Neither I nor II is true.

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Definitions:

Tariff

A tax imposed on imported goods, usually to protect domestic industries or to generate revenue.

Economic Efficiency

A condition in which resources are allocated in such a way that maximizes the net benefit to society, ensuring that goods and services are produced and distributed in the most cost-effective manner.

Import Quotas

Limits set by a government on the quantity of a certain good that can be imported into a country, used to protect domestic industries.

Tariffs

A tax imposed by a government on goods and services imported from other countries, affecting the price and availability of those items.