Question

"The costs of financing investment are related only to interest rates; therefore, the only way that monetary policy can affect investment spending is through its effects on interest rates." Is this statement true, false, or uncertain? Explain your answer.

Short answer

The stated assertion is incorrect.

Step-by-step solution

Step 1. Concept of cost of investing and monetary policy

The cost and interest charges incurred to purchase investments are referred to as the cost of financing investments.

The central bank's monetary policy, which includes interest rate and money supply control, is known as monetary policy. The central bank employs monetary policy to achieve goals such as growth, consumption, and liquidity.

Step 2. Explanation

The given statement is false. Cost of financing investments include the interest rates and also the other charges like brokerage paid.

Cost of financing investments can affect the availability of loan which may mold the expenditure on investments. Further, the stock market gets affected by the monetary policy which results in untoward selection and moral jeopardy in lending and this jeopardized lending will affect the expenditure on a purchase.