Assume that for the entire business sector of the economy there is $0 worth of investment projects which will yield an expected rate of return of 25 percent or more.But there are $15 worth of investments which will yield an expected rate of return of 20-25 percent;another $15 with an expected rate of return of 15-20 percent;and similarly an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range.
-Refer to the above information.If the real interest rate is 15 percent,what amount of investment will be undertaken?

Question

Quizplus · Accepted Answer

At a real interest rate of 15%, the business sector will undertake investment projects with an expected rate of return of at least 15%. Thus, the total amount of investment projects that will be undertaken is $15 (with an expected rate of return of 15-20 percent) plus $15 (with an expected rate of return of 10-15 percent) plus $15 (with an expected rate of return of 5-10 percent), which equals $45. However, since there are no investment projects with an expected rate of return of 25% or more, the total amount of investment that will be undertaken is $30 (the sum of the investment projects with an expected rate of return of 20-25 percent and 15-20 percent).

Assume That for the Entire Business Sector of the Economy