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Which of the following statements regarding investment is (are) correct? I. When the interest rate falls,...

Which of the following statements regarding investment is (are) correct? I. When the interest rate falls, residential investment increases because demand for houses falls. II. When the interest rate falls, inventory investment increases because the opportunity cost of holding inventory decreases.

a) None of the above. b) I only. c) II only. d) I and II.

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Answer #1

Question- Which of the following statements regarding investment is (are) correct? I. When the interest rate falls, residential investment increases because demand for houses falls. II. When the interest rate falls, inventory investment increases because the opportunity cost of holding inventory decreases.

Answer- the correct answer is Option c, that is ii) only.

As because when interest rates increases they tend to discourage investment investment will have higher opportunity cost, and in This case it will be vice-versa as opportunity cost of holding inventory decreases.

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