Many firms use profits to finance their capital investment instead of borrowing from banks. For these firms, higher interest rates are most likely to
1 )
cause them to change the type of investment made with more investment in buildings.
cause them to reduce their investment as they can now earn more interest from saving their profits.
3 )
have no impact on the amount of investment undertaken as they pay no interest.
4 )
result in more investment as they can earn more interest on money deposited in banks.
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