Economic booms should stimulate investment spending because during booms:
A) the real interest rate increases.
B) corporate tax rates usually increase.
C) the purchase price of capital increases.
D) higher levels of employment increase the marginal product of capital.

Question

Quizplus · Accepted Answer

During economic booms, higher levels of employment increase the marginal product of capital, leading to an increase in investment spending. The other options are incorrect as during economic booms, the real interest rate may increase or decrease depending on various factors, corporate tax rates may or may not increase, and the purchase price of capital may or may not increase.

Economic Booms Should Stimulate Investment Spending Because During Booms