Refer to the diagram. Assume that for the entire business sector of a private closed economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But
There are $15 worth of investments that will yield an expected rate of return of 20-25 percent; another
$15 with an expected rate of return of 15-20 percent; and an additional $15 of investment projects in
Each successive rate of return range down to and including the 0-5 percent range. Which of the lines
On the diagram represents these data?
A) A
B) B
C) C
D) D

Question

Refer to the diagram. Assume that for the entire business sector of a private closed economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But
There are $15 worth of investments that will yield an expected rate of return of 20-25 percent; another
$15 with an expected rate of return of 15-20 percent; and an additional $15 of investment projects in
Each successive rate of return range down to and including the 0-5 percent range. Which of the lines
On the diagram represents these data?
A) A 
B) B 
C) C 
D) D

Quizplus · Accepted Answer

Line B shows a decreasing marginal efficiency of capital, which is consistent with the scenario described in the question. The higher the investment, the lower the expected rate of return, which is exactly what is stated in the question. Lines A, C, and D do not show this relationship.

Refer to the Diagram