Question

Answer the question on the basis of the following information for a private closed economy. Assume that for the entire business sector of the economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments that 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.

Answer 1

Answer:

$30

Explanation:

total investments in the economy are:

• $0 that yield an expected rate of return of 25% or more
• $15 that yield an expected rate of return of 20 - 25%
• $15 that yield an expected rate of return of 15 - 20%
• $15 that yield an expected rate of return of 10 - 15%
• $15 that yield an expected rate of return of 5 - 10%
• $15 that yield an expected rate of return of 0 - 5%

If the real interest rate is 15%, then only projects that will yield 15% or more will be carried out and those are worth $15 (yield expected rate of return of 20-25%) + $15 (yield expected rate of return of 15-20%) = $30