Question

Investment depends on the _______ interest rate because higher inflation will _______ the value of the...

Investment depends on the _______ interest rate because higher inflation will _______ the value of the dollars with which the firm will repaythe loan.

A)real, decrease

B)real, increase

C)nominal, decrease

D)nominal, increase

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Answer #2

Answer :- (A) Real , Decreases

Explanation:- Real interest rate is the interest rate which will receive by firm after adjusting the inflation. that is if inflation increase then the Real interest rate will decrease. so real interest rate = nominal interest rate - inflation.

inflation will decrease the purchasing power of money so the value of dollar will decrease so that will beneficial borrower (firm) to payback the loan amount worth less. so our investment is depends on real interest rate.

answered by: anonymous
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