In the equation , if
Is close to infinity:
A) investment is extremely sensitive to real interest rate changes.
B) investment is somewhat sensitive to changes in the marginal product of capital.
C) investment is not very sensitive to real interest rate changes.
D) investment is sensitive to tax rate changes.
E) the output gap is zero.

Question

In the equation  , if 
Is close to infinity:
A) investment is extremely sensitive to real interest rate changes. 
B) investment is somewhat sensitive to changes in the marginal product of capital. 
C) investment is not very sensitive to real interest rate changes. 
D) investment is sensitive to tax rate changes. 
E) the output gap is zero.

Quizplus · Accepted Answer

The presence of a large positive coefficient in front of the variable related to real interest rate (a5fb) indicates that investment is extremely sensitive to changes in real interest rates. If the value of this coefficient approaches infinity, it means that any small change in the real interest rate will have a significant impact on investment decisions.

In the Equation , If