Supply different investment amounts

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Reference no: EM131386349

Column 1 of the table shows different investment amounts in a small country. Column 2 shows the expected rate of return made by business firms on a marginal investment, at the different investment amounts. Column 3 shows the rate of interest required to induce savers to supply the different investment amounts.

Marginal Interest Rate Needed

Investment Rate of Return to Induce Supply of Savings

(in $billions) (percent) (percent)

1 15 7.5

2 14 8.0

3 13 8.5

4 12 9.0

5 11 9.5

6 10 10.0

7 9 10.5

8 8 11.0

9 7 11.5

10 6 12.0

a) Draw a diagram showing the supply and demand for investment funds, and the equilibrium interest rate and quantity.

b) Suppose a usury law restricts interest rates to a maximum of 8 percent. What amount of investment will be made?

c) Who is helped and who is hurt by the usury law?

Reference no: EM131386349

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