Suppose that the real interest rate is 6%. Next, assume that some factors changes, such that the expected rate of return, declines by two percentage points at each prospective level of investment. Assuming no change in the real interest rate, by how much and in what direction will the investment change? which of the following might cause this change: (a) a decision to increase inventories; (b) an increase in excess production capacity. FIGURE 10.5 The investment demand curve. The investment demand curve is constructed by arraying all potential investment projects in descendingorder of their expected rates of return. The curve slopes downward, reflecting an inverse relationship between the real interest rate (the financial "price" ofeach dollar of investing) and the quantity of investment demanded.long 0012-zit galExpected rate of return, r,and real interest rate, / (percents)16140vam vol5InvestmentdemandcurvePALAID10 15 20 25 30 35 40Investment (billions of dollars)Cumulative Amount ofInvestment Having thisRate of Return or Higher,Billions per Year$0tong roun510FONT15TO20a 25 pd ald30 of garwoad 35 dans toitd tas 40 bodThe(depth calientelylesti di 11 spidbanzidT 012-o insorg 01 ons booubong toid 0012 to muran bolasebaser186 Jun whow imPuteri diw histmapReal Interest Rate (i) andExpected Rate of Return (r)16%APS THE141210msza, wo in 8hod 10-J800 6100,12de4brug on "lesiges✓ Chang 2Konatet SD,opiviasco quil

The investment demand curve, under the assumption that all other factors affecting investment remain…

Answered: Suppose that the real interest rate is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the real interest rate is 6%. Next, assume that some factors changes, such that the expected rate of return, declines by two percentage points at each prospective level of investment. Assuming no change in the real interest rate, by how much and in what direction will the investment change? which of the following might cause this change: (a) a decision to increase inventories; (b) an increase in excess production capacity.

FIGURE 10.5 The investment demand curve. The investment demand curve is constructed by arraying all potential investment projects in descending
order of their expected rates of return. The curve slopes downward, reflecting an inverse relationship between the real interest rate (the financial "price" of
each dollar of investing) and the quantity of investment demanded.
long 0012-zit gal
Expected rate of return, r,
and real interest rate, / (percents)
16
14
0
vam vol
5
Investment
demand
curve
PALA
ID
10 15 20 25 30 35 40
Investment (billions of dollars)
Cumulative Amount of
Investment Having this
Rate of Return or Higher,
Billions per Year
$0tong roun
5
10
FONT
15
TO
20
a 25 pd ald
30 of garwo
ad 35 dans to
itd tas 40 bodThe
(depth calientely
lesti di 11 spidban
zidT 012
-o insorg 01 ons booubong toid 0012 to muran bolase
baser186 Jun whow im
Puteri diw hist
map
Real Interest Rate (i) and
Expected Rate of Return (r)
16%
APS THE
14
12
10
msza, wo in 8
hod 10-J800 6
100,12de4brug on "lesiges
✓ Chang 2
Konatet SD,
opiviasco quil

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