According to the neoclassical theory of investment, expectations of a fall in the relative price of...

According to the neoclassical theory of investment, expectations of a fall in the relative price of capital goods should increase investment.

True or false, detailed explanations please

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Expert Solution

Answer: True

Explanation:

Net-investment is basic for the long-term assurance of the capital stock. The neoclassical venture hypothesis accepts that organizations contribute if their present capital stock is littler than the ideal capital stock. The other way around, firms disinvest on the off chance that their present capital stock is adequately bigger than the ideal capital stock.

The ideal capital stock can change for different reasons. Changes sought after can prompt changes in the ideal capital stock. An expansion sought after infers that organizations can build the measure of products they can sell and accomplish higher benefits. Be that as it may, so as to have the option to deliver more merchandise firms need to grow their production abilities. Thus, firms need to put resources into progressively capital. Moreover, changes in budgetary expenses can prompt changes in the ideal capital stock.

Rahul Sunny answered 1 year ago

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