Homework Clinic

Social Science Clinic => Economics => Microeconomics => Topic started by: caca31 on Oct 12, 2022

Title: Why do we think about the interest rate as the "price" of capital?
Post by: caca31 on Oct 12, 2022

Why do we think about the interest rate as the "price" of capital?
◦ Because firms use financial capital to purchase physical capital and the interest rate is the "price" of financial capital.
◦ Because the interest rate determines the equilibrium level of investment demand.
◦ Because the interest rate represents the value the firm avoids paying to lenders by purchasing the capital instead.
◦ Because the interest rate determines the MRP of the capital, which determines its price.
◦ Because the interest rate is the amount the firm earns by purchasing the capital.

Title: Why do we think about the interest rate as the "price" of capital?
Post by: SphnxKickin on Oct 12, 2022

Because firms use financial capital to purchase physical capital and the interest rate is the "price" of financial capital.