The arbitrage condition for capital shows that returns to a bank account are equal to the user cost of capital.

Question

Quizplus · Accepted Answer

The arbitrage condition for capital typically implies that the return on investing in capital (after adjusting for depreciation and taxes) should be equal to the cost of financing that investment, such as the interest rate on a loan, rather than equating directly to the returns to a bank account.

The Arbitrage Condition for Capital Shows That Returns to a Bank