Explain the relationship between the real interest rate and investment demand. Compare that relationship to the relationship between expected profit and investment demand
What will be an ideal response?
The real interest rate determines the quantity of investment demanded. There is an inverse relationship between the real interest rate and the quantity of investment demanded. Expected profit affects investment. An increase in the expected profit from investing increases investment. Hence there is a positive relationship between investment and expected profit.
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Aimee sells hand-embroidered dog apparel over the Internet. Her annual revenue is $128,000 per year, the explicit costs of her business are $42,000, and the opportunity costs of her business are $30,000. What is her accounting profit?
A) $12,000 B) $56,000 C) $86,000 D) $98,000
In the simple accelerator theory an increase in expected sales will
A) lead to an increase in net investment. B) not necessarily lead to an increase in net investment. C) lead to an immediate increase in replacement investment. D) lead to an increase in net investment in the following period.