What is the price of investment? How are they related? What has to be done to increase investment?
What will be an ideal response?
The real interest rate is the price of investment. Interest rate and investment are negatively related. Because businesses often borrow to finance their investments, and the real interest rate indicates how much firm must pay for that privilege. The lower the real rate of interest, the more investment spending there will be. An investment project that looks unattractive at an interest rate of 10 percent may look highly profitable if the firm has to pay only 6 percent. The most obvious way to increase investment by private businesses is to lower real interest rates.
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Given the scenario described, if the market price of hammers was $10, then:
Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot can offer their hammer for a minimum of $7. Lace Hardware can offer the hammer for a minimum of $10. Bob's Hardware store can offer the hammer at a minimum price of $13. A. only House Depot would gain surplus by supplying hammers to the market. B. only House Depot and Lace Hardware would gain surplus by supplying hammers to the market. C. House Depot, Lace Hardware, and Bob's Hardware would all supply hammers to the market, but Bob's would lose surplus. D. only House Depot and Bob's Hardware would supply hammers to the market.
Refer to the information provided in Figure 2.5 below to answer the question(s) that follow.
Figure 2.5Refer to Figure 2.5. The economy is currently at Point A. The opportunity cost of moving from Point A to Point B is the
A. 30 LCD televisions that must be forgone to produce 60 additional OLED televisions. B. 90 LCD televisions that must be forgone to produce 20 additional OLED televisions. C. 30 LCD televisions that must be forgone to produce 20 additional OLED televisions. D. 120 LCD televisions that must be forgone to produce 40 additional OLED televisions.