Suppose there is a decrease in profitability. This suggests that:
A) the real interest rate has decreased.
B) firms have decreased their expectations of future profits.
C) the rate of depreciation has decreased.
D) All of the above.
E) None of the above.

Question

Quizplus · Accepted Answer

A decrease in profitability implies that firms are making less profit than expected. This might be due to decreased sales, increased costs of production, or other factors affecting revenue. Therefore, firms are likely to decrease their expectations of future profits, which will affect their investment decisions and potentially lead to a decrease in economic growth. The real interest rate and rate of depreciation might be affected by changes in profitability, but they are not direct causes or indicators of it.

Suppose There Is a Decrease in Profitability