The difference between investment schedule and investment demand curve.
Explanation of Solution
An investment schedule depicts the levels of investment made at different levels of
Whereas, the investment demand curve shows the level of investment made at different levels of interest rate and expected return. If the expected return from the investment is greater, then the level of investment is higher and vice versa. Thus, there is a positive relationship between the investment demand and expected return.
If the interest rate is higher, then the cost of borrowing would be greater which in turn reduces the return from the investment. Thus, increasing interest leads to reduce the demand for investment and vice versa. There is a negative relationship exist among the demand for investment and interest rate.
Concept Introduction:
Investment schedule: An investment schedule shows the level of demand for investment at different levels of national income.
Investment demand curve: The investment demand curve depicts the value of investment projects demanded at every given interest rate.
Want to see more full solutions like this?
Chapter 29 Solutions
Economics: Principles, Problems, & Policies (McGraw-Hill Series in Economics) - Standalone book
- Intended Spending (billions) $2,300 $2,100 $1,900 $1,700 $1,500 The marginal propensity to consume is 01 O 19/21. O 2/3. O 5/7. 45% $1,500 $1,800 $2,100 $2,400 $2,700 Gross Domestic Product (billions) impossible to tell from the graph. Consumption plus investment Consumptionarrow_forwardAccording to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? O. 1971 O. 1972 O. 1973 O. 1974 O. 1975arrow_forwardAssume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose there are $10 billion of investment projects yielding expected returns of between 20 and 25 percent; another $10 billion yielding between 15 and 20 percent; another $10 billion yielding between 10 and 15 percent; and so forth. a. Cumulate these data and present them graphically using the graph below, putting the expected rate of return (and the real interes rate) on the vertical axis and the amount of investment on the horizontal axis. Instructions: Use the tool provided 'ID' to plot the investment demand curve (plot 6 points total). 30 Tools ID 20 15 10 10 20 30 40 50 60 Investment (billions of dollars) Instructions: Enter your answers as a whole number. b. What will be the equilibrium level of aggregate investment if the real interest rate is: 15 percent: $ billion 10 percent: $ billion 5 percent: $ billion Expected rate of return, percent 25arrow_forward
- Assume there are no prospective investment projects (1) 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. If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be Multiple Choice O O O O $15 billion. $10 billion. $20 billion. $25 billion.arrow_forwardSuppose consumption function is specified as C= $200 + 0.75Ya planned investment is $600, net taxes are $400, and government spending totals $500 of a hypothetical economy in 2020. Find algebraically: LO 3 A. The equilibrium level of aggregate output by equating aggregate output and planned aggregate expenditure. B. Consumption when aggregate output is at the equilibrium level. C. Saving when aggregate output is at the equilibrium level. D. Establish that leakages equal injections at the equilibrium level of aggregate output.arrow_forward5. LO 2,5 A consumer receives income y in the current period and income y' in the future period, and pays taxes of t and t' in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we-y+t, with we denoting lifetime wealth. Use diagrams to determine the effects on the consumer's current consumption, future consumption, and saving of a change in x, and explain your results.arrow_forward
- Suppose the real interest rate is 0%. Daniel worked for 60 years and he retired for 20 years. When Daniel had a job, his annual income was $10,000. During retirement, the annual pension he received was $6,000. Suppose Daniel smoothed consumption completely. What was the amount of savings Daniel had when he retired? O $16,000 O $120,000 $600,000 $60,000arrow_forwardWhich of the following is correct? The relationship between the MPS and the MPC is such that: Select one: o a. MPS/MPC = 1 O b. MPC - 1 = MPS O C. 1- MPC = MPS d. MPC - MPS = 1 Cumulative Amount of Interest Rate (0 and Expected Rate of Return (7) vestment Having This Rate of Return or Higher, Bons per Year Real Investment demand curve 5 10 IS 20 25 30 5 ment (bilions of dolar The above schedule indicates that if the real interest rate is 6 percent, then: Select one: a $30 billion will be both saved and invested. b. we cannot tell what volume of investment will be profitable. c. $40 billion of investment will be undertaken d. $25 billion of investment will be undertaken. and real interest raepercenes) lisarrow_forwardSuppose that the demand for loanable funds for car loans in the Milwaukee area is $12 million per month at an interest rate of 1O percent per year, $13 million at an interest rate of 9 percent per year, $14 million at an interest rate of 8 percent per year, and so on. If the supply of loanable funds is fixed at $18 million, what will be the equilibrium interest rate? Instructions: Enter your answer as a whole number. percent per yeararrow_forward
- According to the text, a "multiplier" is used as an assessment and evaluation tool for several reasons. Which of the following is NOT a reason for using a multiplier? Seleet one: O 1. A multiplier represents the amount of times one dollar will be spent before it leaks out into the cconomy. O 2. A multiplier is used to assess overall return on investment for one dollar spent. 3. A multiplier is used to discount a future expenditure in terms of current dollars that needs to he spent. O 4. A multiplier is used to evaluute the effectiveness of one event or property compured to another.arrow_forwardPlanned Aggregate Spending (billions of dollars) 200 180 160 140 120 100 80 60 O 0.5 40 20 O 0.95 0 O 0.85 0 20 O 0.75 C 1 Question 8 40 1 1 1 1 O none of the answers given is correct A 7. What is MPC if this hypothetical economy were to move the macroeconomic poin A? B 45 degree line Planned AE New Planned AE 60 80 100 120 140 160 180 200 Real GDP (in billions of dollars)arrow_forwardCF 1 2 3 4. 5 Disposable income (trillions of 2005 dollars) In the above figure, at a disposable income level of $2 trillion, saving equals Select one: O a. $4 trillion. O b. zero. O c. consumption expenditures. O d. disposable income. 6. 3 DT Processing of...pdf 2 Introduction to..pdf odf here to search Consumption expenditure (trillions of 2005 dollars) 5, IIarrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education