Investment will be more variable if the real interest rate is
A) more variable and future total factor productivity is more variable.
B) more variable and future total factor productivity is less variable.
C) less variable and future total factor productivity is more variable.
D) less variable and future total factor productivity is less variable.
E) is constant with total factor productivity.

Question

Quizplus · Accepted Answer

The real interest rate represents the opportunity cost of investing, and the variability of this cost will affect the level of investment. Moreover, future total factor productivity, which represents the potential return on investment, will also affect investment decisions. Therefore, if both variables are more variable, investment will be even more uncertain and unpredictable.

Investment Will Be More Variable If the Real Interest Rate