When the rate of return on the last dollar of investment is below the rate of time preference, an economy is currently investing too ________ and consuming too ________.

Question

Quizplus · Accepted Answer

When the rate of return on the last dollar of investment is below the rate of time preference, it means that people are willing to save more than businesses are willing to invest. This leads to an excess supply of savings and a shortage of investment, which in turn leads to a decrease in interest rates. Lower interest rates encourage people to save even more, which further exacerbates the problem. The correct answer is B: much, little.

When the Rate of Return on the Last Dollar of Investment