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) constant with total factor productivity.

Question

Quizplus · Accepted Answer

The real interest rate and future total factor productivity are both important determinants of investment. If both of these variables are more variable, then the level of investment will be more uncertain and variable as well. This is because fluctuations in the real interest rate will influence the cost of borrowing and the return on investment, while changes in total factor productivity will affect the profitability and competitiveness of investments. Therefore, option A is the best choice.

Investment Will Be More Variable If the Real Interest Rate