Suppose that along the economy-wide rate-of-return line,the current interest rate of 8 percent causes a planned investment of $300 billion.Should the interest rate fall to 7 percent,the $300 billionth dollar of investment spending now generates a ________ rate of profit,which puts ________ pressure on investment.

Question

Quizplus · Accepted Answer

If the interest rate falls to 7 percent and the $300 billionth dollar of investment still generates a profit, it means the rate of profit is positive. Since the cost of borrowing (interest rate) is lower, it becomes cheaper to invest, putting upward pressure on investment.

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