Asked by Sydney Horton on May 16, 2024
Verified
Which statement is true?
A) The expected rate of profit is very high during depressions.
B) The best environment for most investment projects is a high rate of interest and a low marginal efficiency of capital.
C) The higher the marginal efficiency of capital,the more likely an investment project will be carried out.
D) None is true.
Marginal Efficiency
The additional benefit received from consuming or producing one more unit of a good or service.
Capital
Refers to any financial asset, including cash, equipment, and buildings, used in production of goods or services.
Investment Project
A project undertaken by a company or an individual in expectation of generating future financial returns.
- Comprehend the principle of marginal efficiency of capital and its significance in making investment choices.
- Discern the impact of interest rates on selecting investment avenues and the price of opportunities lost.
Verified Answer
HS
Hritik SachdevaMay 22, 2024
Final Answer :
C
Explanation :
The marginal efficiency of capital measures the expected rate of return on an investment project, and the higher it is, the more attractive the project appears to be. Therefore, option "C" is true. Options A and B are false as high rates of interest (option B) indicate a higher cost of borrowing, which discourages investment, and a depression (option A) is usually associated with low profitability and reduced investment. Option D indicates that none of the statements are true, which is not the case as option C is true.
Learning Objectives
- Comprehend the principle of marginal efficiency of capital and its significance in making investment choices.
- Discern the impact of interest rates on selecting investment avenues and the price of opportunities lost.