If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when
A) r falls.
B) i is greater than r.
C) r is greater than i.
D) i rises.

Question

Quizplus · Accepted Answer

When the expected rate of return from additional investment (r) is greater than the real interest rate in the economy (i), investors will be more likely to invest, as they can earn a higher return than if they simply left their money in a savings account earning the real interest rate. Therefore, more investment will be forthcoming when r is greater than i.

If the Real Interest Rate in the Economy Is I