Explain the determinants of investment. Include in your answer an explanation of how a change in each determinant affects investment
What will be an ideal response?
Investment depends on the level of sales/output and on the interest rate. As output changes, the demand for goods will change and firms will change investment so that their capacity changes with the level of economic activity (and demand). I also depends on the interest rate. As the interest rate rises, the cost of borrowing rises. Firms will cut back on investment as borrowing costs rise.
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The relationship between the quantity of money balances demanded and the interest rate is
A) contractionary monetary policy. B) determined by open market operations. C) negative. D) the reserve requirements.
Consider the demand function Qd = 150 - 2P. The effects of other determinants of Qd is reflected in
A) the intercept of the function. B) the slope of the function. C) neither the slope nor the intercept of the function. D) in both the slope and the intercept of the function.