Question

The following statement is false. Correct it, and justify the correction by stating two other factors...

The following statement is false. Correct it, and justify the correction by stating two other factors that can affect investment plans.

The expenditure plans of firms (i.e. investment plans) change every time the real interest rate changes.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The statement is false.

Banks' investment decision depends on three factors:

(1) Cost of borrowing, which is measured by nominal interest rate. Since real interest rate is the difference between nominal rate and inflation rate, whenever inflation changes, real rate changes, which makes decision-making on basis of real interest rate highly destabilizing.

The higher (lower) the nominal interest rate, the higher (lower) the cost of borrowing and the lower (higher) the investment.

(2) Future outlook

If firms are more (less) optimistic about future economic prospects, the stronger (weaker) the investor confidence, and they will want to expand (not expand) and so, they will increase (decrease) investment.

(3) Availability of tax credits

Investment tax credits decrease the overall tax burden of firms, increasing profitability. So if tax credits are available (not available), firms will invest more (less).

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The following statement is false. Correct it, and justify the correction by stating two other factors...
The following statement is false. Correct it, and justify the correction by stating two other factors that can affect investment plans. The expenditure plans of firms (i.e. investment plans) change every time the real interest rate changes
Describe how each of the following developments will affect the economy’s normal real interest rate and...
Describe how each of the following developments will affect the economy’s normal real interest rate and normal investment. a. The government institutes a permanent investment tax credit (ITC). (You can think of an ITC as a program that reduces the effective purchase price of new capital for firms.) b. Increasing risk aversion causes American consumers as a group to permanently consume less at every level of the real interest rate.
1.Which of the following is a true statement about the multiplier? * The multiplier effect does...
1.Which of the following is a true statement about the multiplier? * The multiplier effect does not occur when autonomous expenditures decrease The multiplier is a value between zero and one The smaller the MPC, the larger the multiplier The multiplier rises as the MPC rises 2.According to the Keynesian model of the macroeconomic, the most effective means for closing a recessionary gap is * Decrease in marginal tax rates which shift SRAS Increases in government spending which shift AD...
Is the following statement true or false: If a system of two linear differential equations is...
Is the following statement true or false: If a system of two linear differential equations is saddle point stable, the variables can move against their steady state values ​​over time. Explain your answer.
True, False or uncertain?  Explain whether each of the following statement is true, false or uncertain. Start...
True, False or uncertain?  Explain whether each of the following statement is true, false or uncertain. Start your answer by selecting one of the three statements – “True”, “False” and “Uncertain” and then provide arguments to justify your selection (be brief and concise in less than 100 words). You need to make assumption clear, reasonable and explicit if making any. a. Nominal interest rates are always higher than real interest rates. Answer b. If the lockdown measure due to a further...
Answer the next question based on the following list of factors that are related to the...
Answer the next question based on the following list of factors that are related to the aggregate demand curve. 1) Real-Balances Effect 2) Household Expectations 3) Interest-Rate Effect 4) Personal Income Tax Rates 5) Profit Expectations 6) National Income Abroad 7) Government Spending 8) Foreign Purchases Effect 9) Exchange Rates 10) Degree of Excess Capacity Changes in which two of the factors would most likely cause a shift in aggregate demand due to a change in consumer spending? 1&3? 2&4?...
Consider the following two statements: I. The income statement measures the flow of funds into (i.e....
Consider the following two statements: I. The income statement measures the flow of funds into (i.e. revenue) and out of (i.e. expenses) the firm over a certain time period. It is always based on accounting data. II. The balance sheet is a financial statement measuring the flow of funds into and out of various accounts over time while the income statement measures the progress of the firm at a point in time. Options: Only Statement II is true Both statements...
Classify the following statement as TRUE or FALSE: A) The partial orders in a reaction's rate...
Classify the following statement as TRUE or FALSE: A) The partial orders in a reaction's rate law (i.e. the orders of each individual participant in the rate law) must be integer numbers:   B) The partial orders in a reaction's rate law (i.e. the orders of each individual participant in the rate law) are never negative:   C) The rate constant of a reaction can be a negative number: D) Every species that appear in the rate law of a reaction must...
Which of the following is graphed as a horizontal line across levels of real GDP in...
Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model? the saving schedule the investment schedule the consumption schedule the investment demand curve The multiplier effect relates changes in the price level to changes in real GDP. the interest rate to changes in investment. disposable income to changes in consumption. spending to changes in real GDP. The multiplier can be calculated by dividing one by one minus the marginal propensity...
1.Which of the following statement is not true about interest rate risk? (Only one correct answer.)...
1.Which of the following statement is not true about interest rate risk? (Only one correct answer.) Select one: a. Bond prices are negatively related to interest rate movements. b. Lower coupon bonds have lower interest rate risk. c. Long term bonds have higher interest rate risk than short term bonds. d. Interest rate risk is the uncertainty of how the bond price will change following the interest rate changes. 2.Which one of the following statements best describes two mutually exclusive...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT