A key determinant of investment is
A) the expected rate of future total factor productivity.
B) the level of economic activity.
C) the level of government spending.
D) the potential for exports.
E) the real interest rate.

Question

Quizplus · Accepted Answer

The real interest rate is a key determinant of investment because it affects the cost of borrowing and the return on investment. A higher real interest rate makes borrowing more expensive, which reduces investment. Similarly, a higher real interest rate increases the opportunity cost of investing, making other options more attractive. On the other hand, a lower real interest rate makes borrowing cheaper and increases the return on investment, which stimulates investment.

A Key Determinant of Investment Is