Which of the following would encourage greater investment in capital?
A) an increase in the corporate profits tax
B) greater uncertainty regarding the rate of return
C) an increase in the price of capital
D) a reduction in the rate of interest
E) an increase in the rate of depreciation or obsolescence

Question

Quizplus · Accepted Answer

A reduction in the rate of interest would encourage greater investment in capital because it would lower the cost of borrowing money for investment purposes. This would make it more attractive for businesses to invest in capital projects, as they would be able to finance these investments at a lower cost. This would lead to an increase in the supply of capital, as businesses would be more willing to invest in new projects, and this would in turn lead to a greater level of economic growth and development.

Which of the Following Would Encourage Greater Investment in Capital