Refer to the table in Figure 10.5 and suppose that the real interest rate is 6 percent.

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Refer to the table in Figure 10.5 and suppose that the real interest rate is 6 percent. Next, assume that some factor changes such that the expected rate of return declines by 2 percentage points at each prospective level of investment. Assuming no change in the real interest rate, by how much and in what direction will investment change? Which of the following might cause this change:

(a) a decision to increase inventories;

(b) an increase in excess production capacity?

Figure 10.5:

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Macroeconomics

ISBN: 9781264112456

22nd Edition

Authors: Campbell McConnell, Stanley Brue, Sean Flynn

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