The immediate determinants of investment spending are the
A) expected rate of return on capital goods and the real interest rate.
B) level of saving and the real interest rate.
C) marginal propensity to consume and the real interest rate.
D) interest rate and the expected price level.

Question

Quizplus · Accepted Answer

Investment spending is mainly determined by the expected rate of return on capital goods and the real interest rate. The expected rate of return on capital goods measures the profitability of investments while the real interest rate determines the cost of borrowing money to finance investments. Therefore, choice A is the correct answer. Choice B is incorrect because saving is a consequence of income and not a determinant of investment. Choice C is incorrect because the marginal propensity to consume is a determinant of consumption, not investment. Finally, choice D is incorrect because the expected price level is not a determinant of investment but rather a determinant of inflation.

The Immediate Determinants of Investment Spending Are the