According to the neoclassical model of investment,the immediate impact of a rise in the real interest rate will be to:

Question

Quizplus · Accepted Answer

According to the neoclassical model of investment, a rise in the real interest rate will increase the cost of capital, which will discourage investment and lower the rate of investment. The rental price of capital, on the other hand, will remain unchanged, as it is determined by the productivity of capital and not by the interest rate. Thus, the best choice is D (increase the cost of capital and lower the rate of investment, but leave the rental price of capital unchanged).

According to the Neoclassical Model of Investment,the Immediate Impact of a Rise