For the Profit-Maximizing Firm, If the Real Interest Rate Is

question 65

Multiple Choice

For the profit-maximizing firm, if the real interest rate is greater than the marginal product of capital, the firm should:

• A) invest in more capital.
• B) get rid of some capital.
• C) keep its capital stock the same, as there is a risk premium attached to the real interest rate.
• D) hire more workers.
• E) buy stocks.

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Definitions:

Per Quarter

A term indicating events or measurements that occur or are calculated every three months.

Annual Growth Rate

The rate of growth or decline in a specific variable over the course of a year.

Fiscal Quarters

Divisions of a financial year into four parts, used for accounting purposes and financial reporting by companies.

Nominal Interest Rate

The interest rate before adjustments for inflation, representing the rate that banks and other lenders quote.