A key determinant of investment is
A)the level of government spending.
B)the level of economic activity.
C)the expected rate of future total factor productivity.
D)the real interest rate.
E)the potential for exports.

Question

Quizplus · Accepted Answer

The real interest rate is a key determinant of investment because it reflects the cost of borrowing funds to finance investment projects. As the real interest rate decreases, the cost of borrowing decreases, which can increase the incentive for firms to invest in new projects. Conversely, as the real interest rate increases, the cost of borrowing increases, which can decrease the incentive for firms to invest.

A Key Determinant of Investment Is