Answer the question on the basis of the following information. Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for businesses to invest in new machinery and equipment, so investment would be zero. But if the interest rate were 16 percent, businesses would find it profitable to invest $10 billion. If the interest rate were 12 percent, $20 billion would be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate. Refer to the information. Which of the following correctly expresses the indicated relationship as an equation?
A) i = 20 - 4I.
B) i = 20 - .4I.
C) i = 24 - .4I.
D) i = 20 - 10I.

Question

Quizplus · Accepted Answer

The relationship between interest rate (i) and investment (I) is linear, with a 4% decrease in interest rate for every $10 billion increase in investment. The equation i = 20 - 0.4I correctly represents this relationship, where i is the interest rate and I is the investment in billions.

Answer the Question on the Basis of the Following Information