Author Question: Which of the following will cause the rental cost/user cost of capital to decrease? A) The rate ... (Read 86 times)

roselinechinyere27m · **on:** Jun 30, 2018

Which of the following will cause the rental cost/user cost of capital to decrease?

A) The rate of depreciation decreases.
B) The real interest rate increases.
C) The expected profit from the machine decreases.
D) all of the above
E) none of the above

Question 2

Explain in detail what effect an increase in government spending will have on: (1 ) the LM curve; and (2 ) the IS curve.

What will be an ideal response?

vickyvicksss · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

B

Answer to Question 2

An increase in government spending will cause an increase in demand and the equilibrium level of output in the goods market will be higher. This is reflected in a rightward shift in the IS curve. Goods market events such as this will not cause a shift in the LM curve (only a movement along it).