Question

A business firm will purchase additional capital goods if the real rate of interest in the economy is less than the expected rate of return from the investment.

True / False.

Answer 1

True

Step-by-step explanation:

The real rate of interest = Nominal rate - Inflation.

Since the actual market rate is real rate at which the goods can be borrowed or purchased, if the expected return on assets is higher than that of the real rate the capital assets shall be brought as, in this case the revenue will be higher than the normal rate, because revenue = Expected rate of return

Real rate = Cost of borrowing and acquiring

thus there will be profit.

The statement is True