INTEREST RATE (Percent) 14 13 12 16 15 653 2 = 0 11 10 Investment Function 88 M 5 4 3 2 1 0 0 25 50 75 100 125 150 175 200 REAL INVESTMENT (Billions of dollars) Determine how each of the following events will shift the investment demand (I) curve. ? Event Number 1. Event An increase in business taxes will cause the investment demand curve to shift to the 2. Firms having excess inventories of finished goods because the economy is overstocked with production facilities will cause the investment demand curve to shift to the The following table shows the expected rate of profit and the cumulative amount of investment with that rate of profit or higher in a hypothetical economy. For example, $50 billion worth of investment projects have an expected rate of profit that is greater than or equal to 11%. Put another way, at an interest rate of 11%, the amount of investment demanded equals $50 billion. Expected Rate of Profit Cumulative Investment at this Rate of Profit or Higher (Percent) 14 11 8 5 (Billions of Dollars) 25 50 75 100 Using the blue points (circle symbol), plot the hypothetical economy's investment demand curve (I) on the graph. Line segments will automatically connect the points. ST RATE (Percent) 14 65132 11 10 Investment Function ?
INTEREST RATE (Percent) 14 13 12 16 15 653 2 = 0 11 10 Investment Function 88 M 5 4 3 2 1 0 0 25 50 75 100 125 150 175 200 REAL INVESTMENT (Billions of dollars) Determine how each of the following events will shift the investment demand (I) curve. ? Event Number 1. Event An increase in business taxes will cause the investment demand curve to shift to the 2. Firms having excess inventories of finished goods because the economy is overstocked with production facilities will cause the investment demand curve to shift to the The following table shows the expected rate of profit and the cumulative amount of investment with that rate of profit or higher in a hypothetical economy. For example, $50 billion worth of investment projects have an expected rate of profit that is greater than or equal to 11%. Put another way, at an interest rate of 11%, the amount of investment demanded equals $50 billion. Expected Rate of Profit Cumulative Investment at this Rate of Profit or Higher (Percent) 14 11 8 5 (Billions of Dollars) 25 50 75 100 Using the blue points (circle symbol), plot the hypothetical economy's investment demand curve (I) on the graph. Line segments will automatically connect the points. ST RATE (Percent) 14 65132 11 10 Investment Function ?
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance
Section: Chapter Questions
Problem 13PAE
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