Suppose that along the economy-wide rate-of-return line,the current interest rate of 8 percent causes planned investment of $300 billion.The $250-billionth dollar of investment spending has a rate of return ________ 8 percent and thus a ________ profit rate.
A)below,positive
B)below,negative
C)above,positive
D)above,negative

Question

Quizplus · Accepted Answer

According to the given scenario, at the current interest rate of 8 percent, the planned investment is $300 billion, which lies on the economy-wide rate-of-return line. Now, as we move from left to right on this line, the rate of return on investment decreases. This implies that investment opportunities with a rate of return above 8 percent have already been exhausted, and the $250-billionth dollar of investment spending will have a rate of return above 8 percent. Therefore, the answer is (C) above, positive profit rate.

Suppose That Along the Economy-Wide Rate-Of-Return Line,the Current Interest Rate