If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then, other things equal,
A) more investment will be forthcoming when i exceeds r.
B) less investment will be forthcoming when r rises.
C) r will fall as more investment is undertaken.
D) r will exceed i at all possible levels of investment.

Question

Quizplus · Accepted Answer

As more investment is undertaken, the expected rate of return (r) tends to decrease due to diminishing marginal returns on investment.

If the Real Interest Rate in the Economy Is I