According to the neoclassical model of investment, when the real interest rate increases, business fixed investment ______ because the ______ of capital increases.
A) increases; marginal product
B) increases; cost
C) decreases; marginal product
D) decreases; cost

Question

Quizplus · Accepted Answer

In the neoclassical model of investment, when the real interest rate increases, the cost of borrowing to finance investment increases, making capital more expensive. This leads to a decrease in business fixed investment.

According to the Neoclassical Model of Investment, When the Real