The Minimum Level of Net Investment Necessary to Maintain the Stock

question 7

Multiple Choice

The minimum level of net investment necessary to maintain the stock of capital depends on

• A)the rate of interest and the size of the capital stock.
• B)the rate of depreciation and the size of the capital stock.
• C)the corporate profits tax and the interest rate.
• D)business confidence and the corporate profits tax.

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Definitions:

Inflationary Premium

The additional interest rate or return that lenders demand to compensate for the decrease in purchasing power of money due to inflation.

Money Rate

It usually refers to the interest rate, which is the cost of borrowing money, often set by central banks to influence economic activity.

Real Rate

The interest rate adjusted for inflation, representing the true cost of borrowing or the true return on investment.

Inflationary Premium

The part of the nominal interest rate that represents compensation to the lender for the expected loss of purchasing power due to inflation.