A decrease in which of the following variables will cause a decrease in the user cost of capital?
A) t Kt.
B) IIt.
C) II e .
D) Yt.
E) rt.

Question

Quizplus · Accepted Answer

The user cost of capital is calculated as the sum of the interest rate (rt) and the rate of depreciation on the capital stock (δ). Therefore, a decrease in rt (the interest rate) will cause a decrease in the user cost of capital. None of the other variables listed have a direct impact on the user cost of capital.

A Decrease in Which of the Following Variables Will Cause