Assume that for the entire business sector of a private closed economy, there are $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. The expected rate of
Return curve
A) shows a direct relationship between the interest rate and investment.
B) is also the investment demand curve.
C) is indeterminate.
D) implies a direct (positive) relationship between the interest rate and the level of GDP.

Question

Quizplus · Accepted Answer

The expected rate of return curve represents the investment demand curve, which shows the amount of investment that businesses will undertake at each level of interest rates. The curve shows that as the expected rate of return decreases, the amount of investment decreases, indicating an inverse relationship between the interest rate and investment. The curve does not provide information on the level of GDP, so option D is incorrect. Option A is also incorrect because the curve shows an inverse relationship between interest rates and investment, not a direct one. Option C is incorrect because the curve is clear and determined based on the given information.

Assume That for the Entire Business Sector of a Private