Multiple Choice QuestionThe Blank______ interest rate, not the Blank______ rate, affects investment and R&D decisions.Multiple choice question.real; nominalmarginal; nominalnominal; realmarginal; real
Question
Multiple Choice QuestionThe Blank______ interest rate, not the Blank______ rate, affects investment and R&D decisions.Multiple choice question.real; nominalmarginal; nominalnominal; realmarginal; real
Solution
The correct answer is "real; nominal". The real interest rate, not the nominal rate, affects investment and R&D decisions. This is because the real interest rate takes into account the rate of inflation, giving a more accurate picture of the cost of borrowing. The nominal interest rate, on the other hand, does not take into account inflation, and therefore may not reflect the true cost of borrowing.
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