Investment occurs when:
A) firms are very profitable and have lots of extra cash on hand.
B) there is a reduction in risk aversion.
C) the expected real interest rate is less than the expected real return on the investment project.
D) individuals realize that there are greater long-term gains in the equity and credit markets.

Question

Quizplus · Accepted Answer

Investment occurs when the expected real return on an investment project is higher than the expected real interest rate. It is rational for firms and individuals to invest in projects that promise higher returns, and the decision to invest is driven by the potential for profit, rather than by profits already earned, reduction in risk aversion, or realization of greater long-term gains in the equity and credit markets.

Investment Occurs When