In the Short Run, If the Federal Reserve Reduces Interest

question 95

Multiple Choice

In the short run, if the Federal Reserve reduces interest rates, firms:

• A) do not change their capital stock.
• B) buy less capital and the marginal product of capital falls.
• C) allow their capital to fully depreciate.
• D) accumulate more inventory.
• E) buy more capital and the marginal product of capital falls.

---

Definitions:

Cash Flows

The total amount of money being transferred in and out of a business, especially affecting liquidity.

Operating Activities

Activities that relate directly to the primary operations of a company, such as manufacturing, distributing, marketing, and selling a product or service.

Direct

Pertains to costs or actions that can be directly attributed to a specific project, department, or product without any need for allocation.

Indirect Methods

Approaches used in accounting and finance to estimate or calculate values based on indirect indicators or conversions, rather than direct measurement.