13. Suppose that expected inflation is equal to the nominal interest rate. Also, the nominal interest rate is moderately high (e.g., 15%). Suppose that a firm wants to finance some physical investment-purchasing of new machines-by issuing new bonds. Also, assume that the real return of the new machines is positive. What will be the decision of the company? A. It won't invest because the nominal interest rate is too high. B. It will invest because prices will be higher in the future. C. It won't invest because the expected real interest rate is too low. D. It will invest because despite a low expected real interest rate, prices will be higher. E. It will invest because the expected real interest rate is lower than the real return of the new machines.

13. Suppose that expected inflation is equal to the nominal interest rate. Also, the nominal interest rate is moderately high (e.g., 15%). Suppose that a firm wants to finance some physical investment-purchasing of new machines-by issuing new bonds. Also, assume that the real return of the new machines is positive. What will be the decision of the company? A. It won't invest because the nominal interest rate is too high. B. It will invest because prices will be higher in the future. C. It won't invest because the expected real interest rate is too low. D. It will invest because despite a low expected real interest rate, prices will be higher. E. It will invest because the expected real interest rate is lower than the real return of the new machines.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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