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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

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Answer #1

The expenditure plans of firms (i.e. investment plans) are mainly effected by real interest rates but not solely.

Two other factors that can affect investment plans are:

1. Economic growth: Firms generally invest to make production for the future demand. If the growth ( demand) will increase or decrease the firms change their investment plans accordingly.

2. Inflation: Changing and high inflation rates make uncertainty for the firms to invest or not. If there will be low and stationary inflation the certainty of the firm to invest increases. Hence inflation plays an important role in effecting the investment plans.

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