Author Question: Suppose that, when the price of steel drops, steel companies tend to cut back on investment in their ... (Read 54 times)

elizabeth18 · **on:** Jun 30, 2018

Suppose that, when the price of steel drops, steel companies tend to cut back on investment in their non-steel activities more than other firms in these same non-steel activities. This would support the idea that

A) cash flow matters for investment.
B) cash flow does not matter for investment.
C) business firms do not care about profit.
D) business firms do not care about interest rates.
E) business firms do not use discounting.

Question 2

For this question, assume that investment spending depends only on the interest rate and no longer depends on output. Given this information, a reduction in the money supply

A) will cause investment to decrease.
B) will cause investment to increase.
C) may cause investment to increase or to decrease.
D) will have no effect on output.
E) will cause a reduction in output and have no effect on the interest rate.