According to the neoclassical model of investment, business fixed investment does not depend on:
A) the realized profits of firms.
B) the marginal product of capital.
C) the interest rate.
D) tax rules affecting firms.

Question

Quizplus · Accepted Answer

The neoclassical model of investment suggests that investment decisions are made based on the marginal product of capital and the cost of borrowing (interest rate). Tax rules affecting firms may also play a role in investment decisions. However, the model assumes that investment decisions are not directly influenced by the realized profits of firms, as these profits are already reflected in the marginal product of capital.

According to the Neoclassical Model of Investment, Business Fixed Investment