In the short run, because financial markets do not respond immediately to interest rate changes:
A) prices are volatile.
B) the marginal product of capital always is greater than the real interest rate.
C) the marginal product of capital never deviates to the real interest rate.
D) the marginal product of capital deviates from the real interest rate.
E) investment is less volatile than output.

Question

Quizplus · Accepted Answer

In the short run, financial markets do not respond immediately to interest rate changes, causing the marginal product of capital to deviate from the real interest rate. This means that investment decisions may not always align with the actual real interest rate, leading to potential inconsistencies in the economy.

In the Short Run, Because Financial Markets Do Not Respond