Assume there are no prospective investment projects (I)that will yield an expected rate of return (r)of 25 percent or more,but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent,an additional $5 billion between 15 and 20 percent,and so on.The investment demand curve for this economy is:
A)
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$10\
20&15\
15&20\
10&25\
5&30\
0&35
\end{array}$
B)
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$10\
20&5\
15&10\
10&15\
5&20\
0&25
\end{array}$
C)
$\begin{array}{l}
\underline{r}&\underline{I} \
20\%&\$10\
15&20\
10&30\
5&40\
0&50
\end{array}$
D)
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$5\
20&10\
15&15\
10&20\
5&25\
0&30
\end{array}$

Question

Assume there are no prospective investment projects (I)that will yield an expected rate of return (r)of 25 percent or more,but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent,an additional $5 billion between 15 and 20 percent,and so on.The investment demand curve for this economy is:
A)
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$10\
20&15\
15&20\
10&25\
5&30\
0&35
\end{array}$
B)
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$10\
20&5\
15&10\
10&15\
5&20\
0&25
\end{array}$ 
C)
$\begin{array}{l}
\underline{r}&\underline{I} \
20\%&\$10\
15&20\
10&30\
5&40\
0&50
\end{array}$ 
D)
$\begin{array}{l}
\underline{r}&\underline{I} \
25\%&\$5\
20&10\
15&15\
10&20\
5&25\
0&30
\end{array}$

Quizplus · Accepted Answer

The investment demand curve should show the different levels of investment opportunities and their corresponding expected rates of return. The curve should start at the highest expected rate of return (25%) and gradually decrease as the investment opportunities become less profitable. In this case, there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, another $5 billion between 15 and 20 percent, and so on. Therefore, the investment demand curve should have a downward slope with an increasing quantity of investment opportunities as the expected rate of return decreases. Only choice B fits this description, so it is the best choice.

Assume There Are No Prospective Investment Projects (I)that Will Yield r‾I‾25%$10201515201025530035\begin{array}{l}\underline{r}&\underline{I} \\25\%&\$10\\20&15\\15&20\\10&25\\5&30\\0&35\end{array}r​25%20151050​I​$101520253035​

Assume There Are No Prospective Investment Projects (I)that Will Yield $\begin{array}{l}\underline{r}&\underline{I} \\25\%&\$10\\20&15\\15&20\\10&25\\5&30\\0&35\end{array}$