When the Fed lowers the federal funds rate and the real interest rate falls, what happens to the opportunity cost of investment? What happens to investment?
What will be an ideal response?
The opportunity cost of investment is the real interest rate. When the Fed lowers the federal rate so that the real interest rate falls, the opportunity cost of investment decreases. In response, investment increases.
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Assume that a manufacturer of new handheld computer makes a sales pitch to a retailer in which he is willing to sell 5,000 at $10, 7,000 for $8, 9,000 for $7
But any orders above that amount will start costing the retailer more money on a per-unit basis. The president of the retailer asks why he can't get a discount if he orders more. Can you provide an answer that would help this president understand this apparent paradox?
If the level of technology rises from 8 to 8.2 in one period, the growth rate of technology is ________
A) 2.5 percent B) 20 percent C) two percent D) 0.2 percent