Suppose Firms Increase Investment Spending to Replace Worn-Out Equipment

question 63

Multiple Choice

Suppose firms increase investment spending to replace worn-out equipment. In the short run,aggregate demand will ________ and output will ________.

• A) increase; increase
• B) increase; decrease
• C) decrease; decrease
• D) remain unchanged; remain unchanged
• E) decrease; increase

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Definitions:

Interest Rate

The percentage of a borrowed sum that the lender charges as interest to the borrower, usually specified as an annual percentage of the total loan amount.

Loanable Funds

The money available for borrowing in the financial markets, determined by the savings of individuals and institutions and the willingness to lend.

Interest Rate

The percentage at which interest is charged or paid on a sum of money over a period of time.

Loanable Funds

This refers to the total amount of funds available for borrowing in the financial markets, determined by the saving rate and investment demands.