Which Of The Four Scenarios On Page 164 Are Most Important Today?
Two Kinds of Entrepreneurs
Robert Alford
Grantham University
BA540 Managerial Economics
Dr. Verl Anderson
February 12, 2013
Two Kinds of Entrepreneurs
Which of these four scenarios on page 164 are most important today? Your answer may include more than one scenario.
Which scenario is most conducive toward economic growth? Which scenario is the most normal historically? (a) higher interest rates, more capital invested (b) lower interest rates, less capital invested (c) lower interest rates, more capital invested (d) higher interest rates, less capital invested. As I begin to research the above four scenarios I will begin to determine which of the four can be conducive toward economic growth. An interest rate is the rate at which interest is paid by borrowers for the use of money that they borrow from a lender. Specifically, the interest rate is a percent of principal paid at some rate. Interest rates play a major role in the pricing of securities and the allocation of capital by businesses and investors. This applies to both debt and equity capital and is therefore of utmost importance to investors. When you think of capital invested you must have an understanding of what capital is. According to Skousen capital has many definitions. It can mean capital goods – tools, equipment, machinery, plants, buildings, …show more content…
As capital is allocated on a supply and demand basis, increases in lending rates will decrease the demand for borrowed funds and, indirectly, the demand for equity capital because the return investors require on equity capital also rises with interest rates. This reduces capital investment which leads to decreased economic activity in the short term and impairs businesses ' future productive capacity. Of course, decreases in rates have the opposite effects. When we begin to think about higher interest rates this point makes investor fearful in wanting to invest their
Robert Alford
Grantham University
BA540 Managerial Economics
Dr. Verl Anderson
February 12, 2013
Two Kinds of Entrepreneurs
Which of these four scenarios on page 164 are most important today? Your answer may include more than one scenario.
Which scenario is most conducive toward economic growth? Which scenario is the most normal historically? (a) higher interest rates, more capital invested (b) lower interest rates, less capital invested (c) lower interest rates, more capital invested (d) higher interest rates, less capital invested. As I begin to research the above four scenarios I will begin to determine which of the four can be conducive toward economic growth. An interest rate is the rate at which interest is paid by borrowers for the use of money that they borrow from a lender. Specifically, the interest rate is a percent of principal paid at some rate. Interest rates play a major role in the pricing of securities and the allocation of capital by businesses and investors. This applies to both debt and equity capital and is therefore of utmost importance to investors. When you think of capital invested you must have an understanding of what capital is. According to Skousen capital has many definitions. It can mean capital goods – tools, equipment, machinery, plants, buildings, …show more content…
As capital is allocated on a supply and demand basis, increases in lending rates will decrease the demand for borrowed funds and, indirectly, the demand for equity capital because the return investors require on equity capital also rises with interest rates. This reduces capital investment which leads to decreased economic activity in the short term and impairs businesses ' future productive capacity. Of course, decreases in rates have the opposite effects. When we begin to think about higher interest rates this point makes investor fearful in wanting to invest their