How do firms make investment decisions?
What will be an ideal response?
To determine the quantity of investment, firms compare the expected profit rate from an investment to the real interest rate. The expected profit from an investment is the benefit from the investment. The real interest rate is the opportunity cost of investment. If the expected profit from an investment exceeds the cost of the real interest rate, then firms make the investment. If the expected profit from an investment is less than the cost of the real interest rate, then firms do not make the investment.
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A monopoly differs from monopolistic competition in that
A) a monopoly has market power while a firm in monopolistic competition does not have any market power. B) a monopoly can never make a loss but a firm in monopolistic competition can. C) a monopoly faces a perfectly inelastic demand curve while a monopolistic competitor faces an elastic demand curve. D) in a monopoly there are significant entry barriers but there are low barriers to entry in a monopolistically competitive market structure.
If the required reserve ratio decreases, the:
a. money multiplier increases. b. money multiplier decreases. c. amount of excess reserves the bank has decreases. d. money multiplier stays the same.